UPSC Prelims 2015 · Question 81 of 98
UPSC Prelims 2015 question on Real Nominal GDP Growth
- ExamUPSC CSE
- Year2015
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicEconomic Growth
- DifficultyHard
- TypeStatement
With reference to Indian economy, consider the following statements:
1. The rate of growth of Real Gross Domestic Product has steadily increased in the last decade.
2. The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade.
Which of the statements given above is/are correct?
Show answer
Answer: B. 2 only
Verdict
The answer is 2 only. Nominal GDP at market prices rose steadily over the decade, but the real GDP growth rate did not.
Analysis
Statement 2 is CORRECT. Gross Domestic Product at market prices measured in rupees rose in every year of the decade, with no declining year, because nominal GDP includes price increases and India experienced continuous inflation alongside positive real growth. Statement 1 is INCORRECT. The rate of growth of real GDP fluctuated considerably and fell sharply in 2008-09 during the global financial crisis, so it did not increase steadily.
Source
Planning Commission databook.
How to crack it
Separate the level from the rate and the nominal from the real, because this question is built entirely on the confusion between them. A nominal level can rise steadily even while the real growth rate swings, since the level only needs positive growth plus inflation to keep climbing. Test any steadily increased claim by asking whether it refers to a stock or a flow, and to current or constant prices. Then anchor one event, the 2008-09 crisis, which falsifies any claim of steady growth across that decade.