With reference to India's National Income Accounting and the GDP Deflator, consider the following statements: 1. Real GDP is evaluated at current prices whereas Nominal GDP is evaluated at constant base-year prices. 2. A narrow percentage gap between Real GDP growth and Nominal GDP growth rates indicates a low GDP deflator. Which of the statements given above is/are correct?

Question

Accepted Answer

B) 2 only — Statement 1 is incorrect because Real GDP uses constant base-year prices to remove the effect of inflation, while Nominal GDP uses current prices. Statement 2 is correct because the GDP Deflator measures the ratio of Nominal GDP to Real GDP; a very narrow gap in their growth rates implies low price inflation.

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