Nominal GDP is a measure of the Gross Domestic Product in absolute terms, while real GDP is a measure that factors in the rate of inflation.Know More
The inflation rate changes from year to year in most cases, so using real GDP is a good way to compare the GDP rates of different years. Economists use a metric called the GDP Deflator to determine the real GDP.
Economists use variables such as the GDP to measure the strength of the economy. When they need to compare the GDP rates of different periods, however, using this statistic has problems. This is because the prices for goods and services change over time.
If the GDP rates of growth for the years 1978 and 2008 are the same, for instance, this does not mean that the real value of all goods and services in the country were the same during both periods. Economists need to take the fact that the prices were higher in 2008 than in 1978 into account to compare the two years accurately.
Because prices for products and services tend to rise over time, the inflation rate is positive in most years. For this reason, nominal GDP rates are typically higher than real GDP rates.Learn more about Economics
The GDP (gross domestic product) is not considered to be a good measure of economic well-being by many because it only measures the sales and income from economic purchases rather than looking at any moral implications. An example might be an increase in gun sales, which raises the GDP and would be considered positive; however, that raise in gun sales might have been due to sales among the criminally-minded.Full Answer >
GDP is important because it is a leading indicator of a country's economic health. It gives economists an idea of the nation's financial viability.Full Answer >
According to the World Bank, GDP per capita is equal to the GDP, or gross domestic product, of a country divided by the midyear population of the country. The gross domestic product of a country is the total value added by all the residents in the country in the last period plus any product taxes and minus any subsidies that are not included in the total value of the products.Full Answer >
Using GDP in macroeconomics gives the advantage of easy calculation, because most GDP calculations use the same methodology and it correlates with development measures such as literacy levels. Disadvantages of using GDP include that it excludes the underground economy and ignores the value of household labor.Full Answer >