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1. in no more than five(5) lines of typed text below this question, explain why REAL...

1. in no more than five(5) lines of typed text below this question, explain why REAL GDP is used as a measure of economic growth. keep in mind the formula used to calculate REAL GDP.

2. in no more than five(5) lines of typed text below this question, explain why only the market values of FINAL or FINISHED goods and services are used in the measurement/calculation of an economy's GDP.

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Answer #1

1. Real GDP is the total value of economic output that accounts for the effects of inflation or deflation. Real GDP gives the measurement of pure growth, the percentage change in real GDP is the GDP growth rate. Nominal GDP does not take into account the inflation so nominal GDP is higher than real GDP. So real GDP is used to measure the economic growth.

Real GDP=Nominal GDP/Deflator

Where deflator is the ratio of the price of today compared to the base year. That is inflation is measured by deflator.

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