Question

When we compare real GDP between different years,

we are using constant prices, thus excluding or adjusting for inflation.

we are keeping it real by not counting financial data such as interest and rent, but only real goods.

e include inflation, because that is the reality in today’s world.

we only use real reliable data, not imaginary or just estimated numbers.

Answer 1

Option 1

We are using constant prices, thus excluding or adjusting for inflation.

To compare GDP in different years, we need to make the GDP a real GDP means the nominal GDP adjusted for inflation.

What will this do?

It will give us the comparable data from we can compare the different year GDP because if it uses different prices, then it may be over or under calculated and that is not comparable.

A GDP is compared in base year value where we can look for the real growth in the economy; otherwise, the current prices can overestimate it.