Macroeconomics

Choose the Correct Answer

Correct Answer : Option a

Explanation
When comparing economic performance across different time periods, real GDP is preferred because it accounts for changes in the general price level. This allows for a more accurate assessment of whether an economy is actually growing or contracting in terms of the quantity of goods and services produced as different periods may have experienced different pricing growth (or contraction).

Statement-I is correct : Real GDP is preferred for comparing economic performance across different time periods because it adjusts for inflation, providing a more accurate picture of actual economic growth by measuring output in constant prices.

Statement-II is correct : Real GDP is a measure of economic output adjusted for changes in the general price level (inflation or deflation), providing a more accurate picture of economic growth than nominal GDP, which uses current prices.