Question

In a given year, if Kerala's nominal GSDP increases by 10% but its real GSDP increases by only 5%, what could be a reason for this difference?

• A. Increased government spending on social welfare programs.
• B. A substantial rise in external remittances from non-resident Keralites.
• C. High inflation.
• D. Significant growth in the state's tourism sector.

Answer 1

Answer:

C. High inflation.

• Nominal GSDP measures the value of goods and services at current market prices, including inflation. Real GSDP measures the value at constant prices, excluding the effect of inflation.

• A larger gap between nominal and real GSDP growth rates indicates a high rate of inflation.