When nominal Gross Domestic Product (GDP) rises faster than real GDP, it indicates:

Correct option is C

The correct answer is (C) High inflation

Explanation:
• Gross Domestic Product (GDP) can be calculated in two ways: nominal GDP and real GDP. Nominal GDP measures a country's economic output using current market prices without adjusting for inflation, whereas real GDP measures economic output adjusted for price changes over time (using constant prices of a base year).
• When nominal GDP rises faster than real GDP, it means the total value of goods and services is increasing due to rising prices rather than an actual increase in the physical volume of production. This divergence directly signals the presence of high inflation in the economy.
• Mathematically, the relationship is captured by the GDP Deflator, which is calculated as the ratio of nominal GDP to real GDP multiplied by 100. A widening gap between the two indicators reflects a rising GDP deflator, proving that price levels are elevating significantly across various sectors.
• This indicator is a comprehensive measure of inflation because it includes all goods and services produced domestically, unlike the Consumer Price Index (CPI) or Wholesale Price Index (WPI) which only track specific baskets of market commodities.

Information Booster:
• Real GDP is considered a far superior indicator for assessing true economic growth and standard of living because it isolates physical production growth from inflationary noise.
• The base year for calculating real GDP in India is currently revised periodically by the National Statistical Office (NSO) to capture changing structural patterns within the domestic market economy.
• Stagflation is a complex economic anomaly where high inflation occurs simultaneously with stagnant real GDP growth and elevated unemployment rates.

Additional Knowledge:
• Zero growth (Option A): This happens when the real GDP remains completely unchanged from one period to the next, indicating no expansion in the volume of goods and services produced.
• Falling inflation (Option B): Known as disinflation, this refers to a slowdown in the rate at which prices are rising, which would cause nominal GDP growth to converge closer to real GDP growth.
• Deflation (Option D): This represents a persistent decrease in the general price level of goods and services, which would cause nominal GDP to grow slower than real GDP or even decline while real values remain stable.