Question

What is real and nominal GDP? Which one is considered a better indicator of economic growth?

Answer 1

$\begin{array}{cc}\text{Nominal GDP}& \text{Real GDP}\\ \text{It is the current money value of all}& \text{It is the money value of all the final goods and services}\\ \text{the final goods and services produced}& \text{produced by normal residents in a year calculated at}\\ \text{by normal residents during year}.& \text{base year prices.}\\ \text{It can change even when there is no}& \text{It will change only when there is a change in output}\\ \text{change in output.}& \text{of an economy}.\\ \text{It is not a true indicator of economic growth.}& \text{It is a true indicator of economic growth of a country}.\end{array}$

Real GDP is a better indicator of economic growth because it can be compared with base year GDP. While nominal GDP cannot be compared to any previous year's GDP.