Using the year 2005 as the base year and assuming that price

Using the year 2005 as the base year, and assuming that prices during the 1990\'s were lower on average than prices in 2005, we can deduce that:

a. nominal GDP was lower than real GDP in the 1990\'s

b. neither nominal GDP nor real GDP were good measures of GDP

c. nominal GDP was higher than real GDP in the 1990\'s

d. nominal GDP was equal to real GDP during all these years

Solution

Nominal GDP refers to the value of final goods and services produced during the year measured at prices prevailing in current year itself.

Real GDP refers to the value of final goods and services produced during the year measured at prices prevailing in current year itself.

Base year in given case is 2005.

If we calculate the nominal GDP of 1990 then we will multiply the production in 1990 with prices prevailing in 1990 itself. However, if we want to calculate nominal GDP of 1990 then we multiply the production in 1990 with prices prevailing in base year that is 2005.

It has been provided that prices during the 1990\'s were lower on average than prices in 2005.

With prices during the 1990\'s were lower on average than prices in 2005, nominal GDP of 1990 (calculated using 1990 prices) would be lower than the real GDP of 1990 (calculated using 2005 prices).

Hence, the correct answer is option (a).