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National Income Accounting — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsNational Income Accounting3 Marks
Question
Why Real GNP is more important than nominal GNP?
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Answer

Real GNP can rise only when there is rise in physical output during a year. It is clear from the following points:
  1. A country is interested in rise in physical output (Real GNP) and not in monetary (Nominal GNP) as an increase in real GNP leads to rise in standard of living of the people.
  2. Real GNP is a better tool to make a year-to-year comparison of change in the physical output of goods and services. A sustained rise in real GNP reflects the economic growth whereas continuous fall in real GNP is indicator of recession.
  3. Real GNP eliminates the effect of change in prices whereas nominal GNP does not. Therefore, Real GNP truly reflects growth of the country.
  4. It is the Real GNP, which is often used in making international comparisons of economic performance across the country.

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