Question

Contrast the ideas of nominal and real GDP. Why is one more reliable than the other for comparing changes in the standard of living over a series of years? Use the concept of real and nominal GDP to compare the years 1980 and 2017. Which year was a better year for the economy and why

Answer 1

Amswer :

Nominal GDP is means nominal gross domestic product evaluated at todays prices as GDP  tells us about the money generated by all the goods and services in a country within a certain period like for example 1 year and Since Nominal GDP doesn't take into account inflation , we have to use Real GDP in order to determine the living standards as Real GDP takes into account inflation and we can convert Nominal GDP to Real GDP via the GDP deflator.

Using the concept of real GDP and Nominal GDP, we can compare the growth of the economy in years 1980 and 2017.

Real GDP is a measurement of economic output that accounts for the effects of Inflation or Deflation.

Nominal GDP includes both prices and growth, while Real GDP is pure growth.

So, 1980 is a better year, it has sustained periods of growth and In 2017 Real GDP shows that growth rate is very less as compared to 1980.