Macroeconomics: Principles, Problems, & Policies 20th Edition

Published by McGraw-Hill Education
ISBN 10: 0-07766-077-3
ISBN 13: 978-0-07766-077-2

Chapter 7 - Measuring Domestic Output and National Income - Discussion Questions - Page 169: 11

Answer

Nominal GDP is GDP not adjusted for inflation of prices. Real GDP is GDP that has been adjusted for inflation and price changes. Real GDP is more reliable than nominal GDP because it reflects the true growth in standard of living because price changes of everything occur. GDP price index is used to inflate or deflate a nominal GDP to match real GDP.

Work Step by Step

Nominal GDP is GDP not adjusted for inflation of prices. Real GDP is GDP that has been adjusted for inflation and price changes. Real GDP is more reliable than nominal GDP because it reflects the true growth in standard of living because price changes of everything occur. GDP price index is used to inflate or deflate a nominal GDP to match real GDP.
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