What is the primary difference between nominal GDP and real GDP?

The primary difference between nominal GDP and real GDP lies in how they measure economic output relative to changes in price levels. Nominal GDP measures the value of all finished goods and services produced within a country's borders in a specific time period using current prices. This means that it does not account for inflation or deflation; it simply reflects the prices at which goods and services are sold in the market during the time of measurement.

On the other hand, real GDP adjusts nominal GDP for changes in the price level, which allows for a clearer comparison of economic performance over time by factoring out the effects of inflation. This adjustment provides a more accurate reflection of an economy's true growth in terms of actual quantity of goods and services produced, rather than just the dollar amount sold when prices may have changed.

In summary, option B correctly identifies that real GDP adjusts for inflation, enabling a more reliable comparison of economic well-being and growth across different time periods, while nominal GDP represents current market prices without such adjustments. This distinction is crucial for understanding economic trends and making informed comparisons across time and between different economies.