Question

2. Why do economists believe that real GDP is a better measure of production over nominal​ GDP?

Answer 1

Real GDP is better measure of production than nominal GDP because real GDP measures the the overall production after adjusting all the economic factor that affect GDP such as inflation, foreign exchange etc.

Real GDP refers to the total output that an economy produces keeping the price constant. In other words, real GDP is the GDP adjusted after inflation.

Nominal GDP refers to the total output that an economy produces at a particular period of time at current prices. It is the GDP adjusted without inflation.

Nominal GDP helps to calculate the growth of the economy at the current period. Over time, the price of products increases leading to inflation and other factors like foreign exchange. Thus nominal GDP includes the inflation and is not an accurate measure.

Real GDP measures the total products and services keeping the price level cconstant. It is inflation adjusted GDP. Thus, it is an accurate and better measure of production.