Nominal GDP differs from real GDP because:

• A. Nominal GDP is measured using current prices, while real GDP is measured using constant prices.
• B. Nominal GDP excludes government spending, while real GDP includes it.
• C. Nominal GDP only accounts for goods, while real GDP includes both goods and services.
• D. Nominal GDP adjusts for inflation, while real GDP does not.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the definitions of Nominal GDP and Real GDP. Nominal GDP is the total market value of all final goods and services produced within a country in a given period, measured using current prices during the time of measurement.
2. Step 2: Recognize that Real GDP measures the total market value of all final goods and services produced within a country but uses constant prices from a base year to remove the effects of inflation or deflation.
3. Step 3: Identify that the key difference lies in the price basis: Nominal GDP uses current prices which can change due to inflation, while Real GDP uses constant prices to reflect the true volume of production.
4. Step 4: Analyze the incorrect options: Nominal GDP does include government spending, both Nominal and Real GDP include goods and services, and only Real GDP adjusts for inflation, not Nominal GDP.
5. Step 5: Conclude that the correct distinction is that Nominal GDP is measured using current prices, while Real GDP is measured using constant prices to account for inflation.