In determining the economy's real GDP growth rate between two time periods,
A)real national income, which is equal to nominal national income corrected for price- level changes, should be used.
B)we should ignore prices completely, in order to examine output alone.
C)potential national income should be used.
D)nominal national income should be used in comparing levels of output.
E)only the real national product from the latest time period is relevant.

Question

Quizplus · Accepted Answer

Real national income, which takes price-level changes into account, is the most appropriate measure for comparing the output of two time periods. We cannot use nominal national income directly because changes in prices would affect the level of output, making it difficult to determine whether the increase in nominal GDP represents an increase in real output or just an increase in prices. Therefore, by using real national income, we can better evaluate the true growth rate of the economy.

In Determining the Economy's Real GDP Growth Rate Between Two