Answer:
Inflation makes nominal GDP a poor measure of the increase in total production from one year to the next because inflation occurs when the prices of the commodities increase and not when the actual production increases.
Explanation:
- When we use nominal GDP as a measure to determine the increase in the national or the global income, we cease to depreciate for the output for the inflation that has occurred in the financial years that we are measuring the output for.
- When we consider the inflation that has occurred while measuring the national income, we get the real GDP which can be considered to be the best indicator of national income.
