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As per the Indian practices of national accounting, which of the following is adjusted in the nominal Gross Domestic Product (GDP) to arrive at the real GDP?
1. Depreciation
2. Government borrowings
3. Inflation
4. Foreign exchange

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Correct Answer - Option 3 : Inflation

The correct answer is Inflation.

  • Real gross domestic product (real GDP) is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year.

  • Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period. 
  • Nominal GDP measures a country's gross domestic product using current prices, without adjusting for inflation.
  • Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, etc.
    • In other words, Inflation is the decline of purchasing power of a given currency over time. 
  • Depreciation- Depreciation represents how much of an asset's value has been used up. 
    • Depreciation in economics is a measure of the amount of value an asset loses from influential factors affecting its market value. 

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