GDP measured using base year prices is called
constant GDP
real GDP
deflated GDP
nominal GDP
The correct answer and explanation is :
The correct answer is real GDP.
Explanation:
Gross Domestic Product (GDP) is an essential measure of the economic performance of a country. It represents the total monetary value of all goods and services produced within a country’s borders during a specific period. GDP can be measured in two main ways: nominal GDP and real GDP.
- Nominal GDP: This is the GDP measured using current prices, meaning that it does not account for inflation or deflation. It simply calculates the value of output at the prices that are prevalent in the current year. While it gives a snapshot of the economy’s performance, it can be misleading when comparing economic output over time, because inflation can distort the value.
- Real GDP: Real GDP, on the other hand, is GDP measured using the prices of a base year. This method eliminates the effects of inflation or deflation by using constant prices (base year prices). Real GDP provides a more accurate reflection of a country’s true economic growth because it compares output without the distortion caused by changes in price levels. This is crucial when comparing economic performance across different time periods, as it shows how much the economy has grown in terms of actual output, not just price changes.
- Constant GDP: This term is essentially another name for real GDP because it represents GDP adjusted for inflation and measured using constant prices.
- Deflated GDP: This is another term that refers to adjusting nominal GDP by a price deflator to account for inflation. It is another way to measure GDP in real terms, but the term “real GDP” is more widely used in economic discussions.
Therefore, real GDP is the correct term for GDP measured using base year prices. It is used to compare economic performance across different periods while eliminating the effects of price changes.
Here is the visual representation of Real GDP, showing how nominal GDP and real GDP behave over time. The chart illustrates how nominal GDP increases due to inflation, while real GDP remains constant or slightly grows, reflecting actual economic growth without the effects of inflation.