QAEconomics › Why Is Real GDP A More Accurate Measure of An Economy’s Production Than Nominal GDP?
Q

Why Is Real GDP A More Accurate Measure of An Economy’s Production Than Nominal GDP?

A

Unlike the nominal GDP, economists calculate the real GDP of a country using the actual prices of commodities without considering inflation. However, when they calculate Nominal GDP, economists consider the output and prices of a country for a given year. That way, they have the total economic value of the country for the year under study.

As a result, as the price of goods increases or decreases in the year, the nominal GDP of a country will be affected. So, when you calculate nominal GDP, one is only trying to see the total value of outputs in a country’s economy.

On the other hand, since, economists ignore inflation when considering real GDP, it gives a better idea of economic growth. It compares the total volume of goods and services (economic output) of a country over a year using current prices. That way, it only gives an idea of the actual volume of production in a given country.

2 months ago
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