Nominal GDP is a measure of the Gross Domestic Product in absolute terms, while real GDP is a measure that factors in the rate of inflation.Continue Reading
The inflation rate changes from year to year in most cases, so using real GDP is a good way to compare the GDP rates of different years. Economists use a metric called the GDP Deflator to determine the real GDP.
Economists use variables such as the GDP to measure the strength of the economy. When they need to compare the GDP rates of different periods, however, using this statistic has problems. This is because the prices for goods and services change over time.
If the GDP rates of growth for the years 1978 and 2008 are the same, for instance, this does not mean that the real value of all goods and services in the country were the same during both periods. Economists need to take the fact that the prices were higher in 2008 than in 1978 into account to compare the two years accurately.
Because prices for products and services tend to rise over time, the inflation rate is positive in most years. For this reason, nominal GDP rates are typically higher than real GDP rates.Learn more about Economics
The difference between the potential and actual gross domestic product (GDP) is known as the output gap, or GDP gap, according to the Economic Policy Institute. The potential GDP is a country's maximum, ideal production with high employment across all sectors of the economy while maintaining currency and price stability. Real GDP is the actual measured economic output for a country over a given interval.Full Answer >
GDP is important because it is a leading indicator of a country's economic health. It gives economists an idea of the nation's financial viability.Full Answer >
There are many different things that affect the GDP, or gross domestic product, including interest rates, asset prices, wages, consumer confidence, infrastructure investment and even weather or political instability. All of the factors that affect GDP can be categorized as demand-side factors or supply-side factors.Full Answer >
According to the BusinessDictionary website, double counting occurs when the costs of intermediate goods that are used for producing a final product are included in the GDP count. To avoid double counting, these intermediate goods costs are ignored, with the GDP total including only the final price of the goods.Full Answer >