Real GDP is preferred to nominal GDP as a measure of economic performance because
A) nominal GDP uses current prices and thus may over or understate true changes in output.
B) nominal GDP only includes goods and excludes services.
C) nominal GDP is not adjusted for population changes.
D) real GDP accounts for changes in the quality of goods and services produced.

Question

Quizplus · Accepted Answer

Real GDP is preferred over nominal GDP because it takes inflation into account, whereas nominal GDP does not. This means that real GDP adjusts for changes in the price level, providing a more accurate measure of economic growth. Nominal GDP can be influenced by changes in prices, which can over or understate true changes in output.

Real GDP Is Preferred to Nominal GDP as a Measure