ECONOMICS
GDP
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Because it is easier to calculate
|
|
|
Because it is more accurate
|
|
|
Because I said so
|
|
|
None of the above
|
Detailed explanation-1: -Why Do Economists Favor Real GDP? Real GDP is often favored over nominal GDP as it accounts for the effects of inflation. Thus, if nominal GDP grew at 4% in a given year, but the inflation rate was 5%, it actually shrunk by 1% in real (constant-dollar) terms.
Detailed explanation-2: -Economists use real GDP rather than nominal GDP to gauge economic well-being because real GDP is not affected by changes in prices, so it reflects only changes in the amounts being produced. You cannot determine if a rise in nominal GDP has been caused by increased production or higher prices.
Detailed explanation-3: -Consequently, real GDP provides a more accurate portrait of economic growth than nominal GDP because it uses constant prices, making comparisons between years more meaningful by allowing for comparisons of the actual volume of goods and services without considering inflation.
Detailed explanation-4: -Why is real GDP more accurate than nominal GDP? It is adjusted for price changes. What is one limitation of GDP? It does not measure health and happiness.
Detailed explanation-5: -Real GDP is a better indicator of economic growth because it can be compared with base year GDP. While nominal GDP cannot be compared to any previous year’s GDP.