Why is real GDP a more accurate measure of the level of production in an economy than nominal GDP? Explain with an example
What will be an ideal response?
Consider an economy that produces only apples. If the price of apples in 2001 is $1 and the economy produces 10 apples, the nominal GDP of the economy is $10. Now, suppose in 2002, the price of apples doubles without any change in production. In this case, the nominal GDP of the economy in 2002 is $20. However, real GDP in both years is $10 if year 2001 is taken as the base year. So, according to real GDP, output has not changed between the two years. Hence, the real GDP, which accounts for inflation, is a more accurate measure of the level of production than nominal GDP.
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a. True b. False Indicate whether the statement is true or false
Which of the following is correct? a. "Theory" and "hypothesis" are interchangeable terms meaning the same thing. b. A hypothesis may result from a tested and confirmed theory
c. A theory may result from a tested and confirmed hypothesis. d. A hypothesis is a theory whose formulation relies on mathematics.