Question

please answer each question thank you so much

1. (2 points) Describe real GDP by answering the following questions: a. What types of goods are included in the measurement of real GDP and what types are not? Why? b. What do economists use real GDP to measure? c. What is held constant when calculating total real GDP? d. If nominal GDP rises, does that mean real GDP also must rise?

Answer 1

a. GDP covers both private and public use, government outlays, acquisitions, private stock increases, building costs paid for, and foreign trade balance (exports are included, imports are subtracted). Sales of goods produced outside our domestic borders Sales of used goods Illegal sales of goods and services (which we call the black market) Transfer payments made by the government Intermediate goods used to produce other final goods. Only domestically produced goods and services are included in the GDP. This ensures this non-U.S.-produced goods will not be counted as part of GDP. This is not counted when a U.S. singer holds a concert abroad. On the other hand, within our domestic borders, goods and services produced and sold by foreigners are counted in GDP.

b. Economists use real gross domestic product (GDP) to monitor the growth of an economy's output. Nominal GDP, typically referred to as GDP alone, uses the quantities and prices over a given period of time to track an economy's total value over a certain period of time. Real GDP, on the other hand, measures the total value generated by constant prices, isolating the effect of price changes. As a consequence, actual GDP is a precise indicator of changes in an economy's output level.

c. The gross domestic product of a country is defined as the market value of all final goods and services produced within a given period of time in that country. And the real gross domestic product is trying to keep the effect of changing prices constant as we look at how the output of a country is changing from year to year.

d. This may be somewhat academic, but in fact, inflation is not taken into account by nominal GDP, and it does. Yet, because this is why some GDP figures were updated, it is an important distinction. Nominal GDP calculates production value over a given quarter or year using the prices of that time. Yet due to inflation, the general level of prices may rise, leading to an increase in nominal GDP even if the amount of goods and services produced remains unchanged. The nominal GDP figures, however, will not reflect the price increase. It is where there is real GDP.