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: 2

Answer

National income accountants compare market value of total outputs and not physical volumes of production because each item has different value attached to them: monetary value. This monetary value is needed to calculate GDP in order for us to know if our economy has grown or not. Furthermore, prices can change over time so it might affect comparison of market value over time. This problem is resolved by using real GDP to calculate the actual growth of output production in a country.

Work Step by Step

National income accountants compare market value of total outputs and not physical volumes of production because each item has different value attached to them: monetary value. This monetary value is needed to calculate GDP in order for us to know if our economy has grown or not. Furthermore, prices can change over time so it might affect comparison of market value over time. This problem is resolved by using real GDP to calculate the actual growth of output production in a country.
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