Question

Which is a better measure of price values for goods and services - nominal or real and why?

Answer 1

Real GDP is better than Nominal GDP

Explanation:

Nominal GDP can increase even without any increase in physical output as it is affected by change in prices. Real GDP helps in determining the effect of increased production of goods and services as it is affected by change in physical output only.

On the other hand, Real GDP is a better measure to make periodic comparison in the physical output of goods and services over different years. It also facilitates international comparison of economic performance across the countries.

Therefore, Real GDP is better than Nominal GDP as it truly reflects the growth of an Economy.