Question

Which of the following statements is correct?
(1) When a British firm invests in a bicycle manufacturing facility in South Africa, the amount concerned is entered as an inflow on the current account of the South African balance of payments.
(2) When someone purchases a second‐hand car, the transaction is included in the calculation of GDP in the year the sale took place.
(3) A deficit on the current account of the balance of payments indicates that the country exported more than it imported during the period in question.
(4) In the base year, the value of nominal GDP is equal to the value of real GDP

Answer 1

$ANSWER$

Option (4): In the base year, the value of nominal GDP is equal to the value of real GDP

$EXPLANATION$

Nominal GDP is GDP at current year prices whereas Real GDP is GDP at base year prices.

Since, GDP = Output × Market prices, it implies that Nominal GDP and Real GDP report different values due to only differences in prices.

Now, in the base year,

$Current \space year \space prices = Base \space year \space prices$

Therefore, nominal GDP and Real GDP use the same prices and same output resulting in an equal value in base year.