Why is it essential to differentiate between real and nominal growth rates of GDP? A. The nominal growth rate is more informative than the real growth rate since it is broader in the sense that it captures both price and output changes. B. The nominal growth rate combines the effect of price changes along with changes in the production of goods and services and thus gives a less clear indication of the impact on living standards. C. It is the real growth rate that is meaningful since it indicates the change in the production of goods and services, a very significant source of improved living standards. D. All of the above. E. B and C only

The main reason as to why it is essential to differentiate these two is that the nominal growth rate combines the effect of price changes along with changes in the production of goods and services and thus gives a less clear indication of the impact on living standards. While the real growth rate measures economic growth in relations to the GDP in different periods, and expressed in real terms, and since it is divided by the population it means that in order to sustain a standard of living it needs to increase at a rate faster than the population.