Question : Economic growth can be measured by:
Option 1: Changes in real GDP
Option 2: Changes in nominal GDP
Option 3: Changes in aggregate demand
Option 4: Changes in aggregate supply
Correct Answer:
Changes in real GDP
Solution : The correct answer is (a) Changes in real GDP.
Economic growth is commonly measured by changes in real GDP (Gross Domestic Product). Real GDP takes into account the effects of inflation and adjusts for changes in the general price level, providing a measure of the economy's output adjusted for price changes.
Real GDP reflects the total value of all goods and services produced within a country's borders over a specific period. An increase in real GDP indicates that the economy has grown and expanded its productive capacity.
While changes in nominal GDP (which is GDP measured in current prices without adjusting for inflation) can provide an indication of the overall size of an economy, it doesn't capture changes in real economic output when prices change.
