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CA Foundation · Business Economics · Determination of National Income

A small economy produces only rice. In the base year it produced 200 tonnes at ₹20,000 per tonne. In the current year it produced 220 tonnes at ₹26,000 per tonne. What is the growth in real GDP over the base year?

Real GDP growth is 10 percent. Valuing both years at base-year prices gives ₹40 lakh and ₹44 lakh. The increase of ₹4 lakh on ₹40 lakh is 10 percent. Nominal GDP rose about 43 percent, but that includes the price increase and overstates real growth.

  1. A10%Correct
  2. B30%
  3. C43%
  4. D40%

Explanation

Real GDP at base prices: base year = 200 × 20,000 = ₹40 lakh; current year = 220 × 20,000 = ₹44 lakh. Growth = 4/40 = 10%. The 43% option comes from comparing nominal GDP (220 × 26,000 = ₹57.2 lakh, a 43% rise), which includes the price change.

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