should we care more about nominal GDP or real GDP??
Thank you for using the Jiskha Homework Help Forum. Here is a link that discusses that very question:
http://economics.about.com/cs/macrohelp/a/nominal_vs_real.htm
A GDP based on the prices that prevailed when the output was produced is called unadjusted GDP, or nominal GDP.
A GDP that has been deflated or inflated to reflect changes in the price level is called adjusted GDP, or real GDP.
http://en.wikipedia.org/wiki/Real_vs._nominal_in_economics
I suppose the answer to your question depends on the particular issue being addressed. However, if I had to pick one over the other, I personally would want real GDP rather than nominal GDP.
How do you find output and input?
To determine whether to care more about nominal GDP or real GDP, it's important to understand the differences between the two.
Nominal GDP is the total value of goods and services produced in an economy, measured using current market prices. It reflects both changes in the quantity of goods produced and changes in prices over time. For example, if the nominal GDP increases from one year to the next, it could be due to either higher production or higher prices, or a combination of both.
On the other hand, real GDP is a measure of the total value of goods and services produced in an economy, adjusted for changes in prices over time. It removes the effect of inflation or deflation to provide a more accurate measure of economic growth and productivity. Real GDP allows for comparisons of economic performance over time or across different countries, as it takes into account changes in the price level.
In general, real GDP is considered to be a more useful economic indicator than nominal GDP. This is because real GDP provides a clearer picture of the actual changes in production and economic activity, while nominal GDP can be influenced by changes in prices. By using real GDP, policymakers and economists can better analyze the changes in output and productivity, separate from the effects of inflation.
However, it is worth noting that there are circumstances where nominal GDP may be more relevant. For example, when assessing the impact of changes in prices on consumers' purchasing power, nominal GDP can be a more appropriate measure. Additionally, in certain economic analyses, it may be necessary to consider both nominal and real GDP to gain a comprehensive understanding of the economic situation.
Ultimately, the choice between nominal GDP and real GDP depends on the specific question or issue being addressed. It is often beneficial to consider both measures in order to have a more complete assessment of economic performance.