Question

1. Explain the difference between real GDP and nominal GDP.

2. Discuss the reasons that explain why GDP is not a perfect measure of economic activity in a country (hint, there are four main reasons

3. What does GDP per capita tell us about a nation's economy? What issues does conventional GDP methodology exclude?

4. Explain how “good institutions” enhance the incentives for entrepreneurship

5. Why are property rights important for economic development?

Answer 1

Answer: 1) GDP measures the money value of goods and services in a specific time period. The differences real GDP and nominal gdp are following :

Real GDP : Real GDP adjusts the inflation level of the economy. Real GDP measures the quantities of current year goods and services at base year price level. This measure only shows the growth level of an economy. The formula of real GDP is

Real GDP = Current year quantity × Base year price

Nominal GDP : Nominal GDP does not adjust the inflation level. Nominal GDP measures the current year quantities of good and services at current year price level. And hence often times nominal GDP becomes higher than the real GDP. The formula of nominal GDP is

Nominal GDP = Current year price × Current year quantity.