ECONOMICS
BUSINESS CYCLES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Use the current year’s prices to calculate the value of the current year’s output
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Calculate the % change from one year to another
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Calculate the amount of taxes citizens pay
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Calculate the total amount of goods bought within the year
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Detailed explanation-1: -To calculate nominal GDP, the value of goods is taken at the current year’s prices, which is achieved by using the consumer price index of the basket of goods. This concludes the topic of nominal GDP formula, which plays an important role in determining the nominal GDP of an economy.
Detailed explanation-2: -Nominal GDP is derived by multiplying the current year quantity output by the current market price. In the example above, the nominal GDP in Year 1 is $1000 (100 x $10), and the nominal GDP in Year 5 is $2250 (150 x $15).
Detailed explanation-3: -Nominal GDP is GDP evaluated at current market prices. Therefore, nominal GDP will include all of the changes in market prices that have occurred during the current year due to inflation or deflation.
Detailed explanation-4: -Because the constant price GDP tells us more about whether the economy is growing, it is sometimes referred to as the real GDP, while the current price GDP is called the nominal GDP.
Detailed explanation-5: -Nominal GDP measures output using current prices, while real GDP measures output using constant prices.