ECO372 Week 1 Discussion Question 2

What is the difference between real and nominal GDP? Does GDP accurately reflect the nation’s welfare? Why or why not? How can a country’s GDP be manipulated? In your opinion, is the U.S. GDP being manipulated? Explain your answer.

What is the difference between real and nominal GDP?

According to Colander (2010), GDP, Gross Domestic Product measures the value of economic activity within a country.     GDP is a statistic used to measures the economy.

Nominal GDP are figures  that have not been adjusted for inflation. The GDP figure can be misleading when inflation is not accounted for in GDP figures. Nominal GDP is GDP evaluated at current market prices. These prices include all the changes that occur in the market prices during the current year due to inflation or deflation.

Real GDP can account for changes in the price level and provide a more accurate figure. Real GDP is GDP evaluated at the market prices of some base year. Example: if 1995 were chosen for the base year, then the real GDP for 1999 is calculated by taking the quantities of all goods and services purchased in 1999 and multiplying them by their 1995 prices.

 Does GDP accurately reflect the nation’s welfare? Why or why not?

What about those who run out of unemployment or those who are on welfare under someone else?  Welfare takes from the system, they don’t give back. The growth rate in GDP is closely evaluated by the Fed to determine growth and whether the economy is growing too slowly  or too quickly...

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