Question

Distinguish between real GDP and nominal GDP. Which is a better index of welfare of people and why?

Answer 1

NOMINAL GDP	REAL GDP
GDP measured in terms of current market prices is called nominal GDP.	GDP computed at constant prices (base year price) is called real GDP
It shows real as well as monetary growth.	It shows real growth
It reflects overestimated GDP due to inflation.	It neutralises the effects of inflation from GDP.
It is calculated by using formula value of output= Current year output x current price	It is calculated by using formula value of output= Current year output x base years price