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What is the relation between nominal GDP and real GDP in a country with positive inflation during a fiscal year?

What is the relation between nominal GDP and real GDP in a country with positive inflation during a fiscal year? Correct Answer Real GDP is always less than nominal GDP.

The correct answer is ​Real GDP is always less than nominal GDP.

  • Real GDP measures the value of the goods and services produced by an economy in a specific period, adjusted for inflation.
  • Since GDP is based on the monetary value of goods and services, it is subject to inflation. Rising prices will tend to increase a country's GDP, but this does not necessarily reflect any increment in the quantity or quality of goods and services produced.
  • Thus, by looking just at an economy’s nominal GDP (which is based on current price), it would be difficult to tell whether the figure has risen as a result of a real expansion in production, or simply because prices rose.
  • Inflation-adjusted or real GDP is calculated by keeping in mind the price change during the period of calculation.
  • For this purpose, the deflator is calculated as follows: Deflator value= (1+percent change in price from the base year expressed in fraction).
  • Suppose the GDP for 2020-2021 is Rs 1 lakh crore and the price change from the base year is 1 percent then the deflator value would be 1+1percent = 1.01. 
  • Now real GDP would be (nominal GDP/deflator) = (1 lakh crore /1.01) =  99009.90 lakh crore.
  • In an economy where positive inflation is observed, the real GDP will always be less than the nominal GDP value.
  • In India, the GDP is released by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation on a quarterly and yearly basis. The base year for GDP calculation in India is 2011-2012.
  • National Statistical Organisation (NSO) was formed by the merger of the National Sample Survey Office (NSSO) and the Central Statistics Office (CSO) by an order dated 23 May 2019.
  • NSO releases a variety of reports on the environment (ENVI-stats), education, unemployment. industrial production, GDP estimation, etc. 
  • Ministry of Statistics and Programme Implementation Key people:
    • Minister: D. V. Sadananda Gowda.
    • Minister of State (Independent charge): Rao Inderjit Singh.
    • Director General (Statistics): Dr. Shailja Sharma.
    • DG (NSS): Shri Asit Kumar Sadhu.
    • Chairman (NSC): Prof. Bimal Kumar Roy.

Related Questions

Consider the following statements about the GDP Deflator. 1. GDP deflator is the ratio of nominal GDP to real GDP. 2. GDP deflator indicates the change in the price level between the base year and the current year. 3. While calculating GDP deflator, the volume of production is considered as fixed. Which of statements given above is/are correct?
Given below are two statements, one labelled as Assertion (A) and the other labelled as Reason (R). Read the statements and choose the correct answer:
Assertion (A) The nominal interest rate comprises of a real interest rate and an expected rate of inflation and it adjusts when the inflation rate is expected to change. Hence, in the perfect international capital markets, real rate of returns are equal in the two countries.
Reason (R) The international fisher effects states that the nominal interest rate differential must be equal to the expected inflation rate differential In the two countries.
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Consider the following with respect to the term 'Core Inflation': A) Core Inflation is the inflation rate of a particular basket of commodities. B) Core Inflation is the sudden increase in prices of certain items of food grains.C) Core inflation is caused by supply shock in certain essential commodities.
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Consider the following statements about GDP Deflator: 1. It is an index number which measures inflation. 2. It is used to get the value of Nominal GDP from Real GDP. Select the correct option from below:
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Consider the following statements in the context of Indian Public Finance: 1. The fiscal deficit is the excess of total budget expenditure over total budget receipts including borrowings during a fiscal year 2. The upward trend in the ratio of Fiscal deficit to GDP has an adverse effect on private investment. Which of the statements given above is/are correct?
Consider the following: (a) Creeping inflation is conducive to economic growth and may have favorable effects. (b) During inflation value of money increases. (c) Inflation benefits debtors. (d) Inflation decreases the inequality of income. Which of the statement/s given above is/are correct?
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