For an economy which consist of single automobile maker and that in year 2014, 30,000 vehicles are produced with an average price of ₹ 5 lakh. For this economy what would be the increase in the nominal GDP for 2015 compared with 2014 with the 4% greater automobile production and 8% inflation.
12.32%
Option 4 — 12.32% is correct.
Nominal GDP is measured at current prices, so it captures both the change in real output (quantity) and the change in the price level (inflation). Nominal GDP = real output × price level. When both grow, the growth factors multiply rather than add.
Real output rises 4% (factor 1.04) and prices rise 8% (factor 1.08):
Nominal GDP growth = (1.04 × 1.08) – 1 = 1.1232 – 1 = 0.1232 = 12.32%.
Why the other options are wrong: 4.0% counts only the real production rise; 6.0% is unrelated; 12.0% simply adds 4% + 8% and ignores the cross term (0.04 × 0.08 = 0.32%) produced when quantity and price both grow. Including that interaction term gives the exact 12.32%.
Takeaway: Nominal growth ≈ real growth + inflation, but exactly (1 + g)(1 + π) – 1, so the true figure slightly exceeds the simple sum.
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