All Flashcards
Nominal GDP increased, but real GDP stayed the same. What happened?
Prices increased, but actual production didn't.
If nominal GDP doubles, what could this indicate?
Either production doubled, prices doubled, or a combination of both.
How does real GDP help in comparing economic performance across different years?
It adjusts for inflation, providing a consistent measure of actual output.
Why is using real GDP important when assessing if a country's economy has improved?
It filters out the impact of inflation, showing actual increases in production.
If nominal GDP increases by 10% and inflation is 5%, what is the approximate change in real GDP?
Approximately 5% increase.
How does the GDP deflator help in understanding the overall health of an economy?
It indicates whether changes in GDP are due to increased production or simply rising prices.
If a country experiences hyperinflation, how would this affect the difference between nominal and real GDP?
Nominal GDP would significantly exceed real GDP.
How can real GDP be used to compare the economic output of two different countries?
By adjusting for inflation and using a common currency, it provides a standardized measure for comparison.
What does it mean if a country's real GDP is decreasing?
The country's output of goods and services is declining, indicating a potential economic slowdown or recession.
How does an increase in productivity affect real GDP, assuming other factors remain constant?
It leads to an increase in real GDP as more goods and services are produced with the same amount of resources.
How can monetary policy affect the difference between nominal and real GDP?
Expansionary policy can increase both, but may lead to a larger increase in nominal GDP due to inflation.
How does fiscal policy influence real GDP?
Government spending and taxation can stimulate or dampen economic activity, directly impacting real GDP.
What is the impact of a supply-side policy on real GDP?
Supply-side policies aim to increase the productive capacity of the economy, leading to a long-term increase in real GDP.
How might trade policies affect nominal vs. real GDP?
Increased exports can boost both, but tariffs could distort prices, affecting nominal GDP more than real GDP.
How does deregulation impact real GDP?
Deregulation can foster competition and efficiency, potentially leading to higher real GDP.
What is the effect of increased government investment in infrastructure on real GDP?
It boosts aggregate demand and enhances productivity, leading to an increase in real GDP.
How does a decrease in income tax rates affect real GDP?
It increases disposable income, boosting consumption and aggregate demand, which can lead to a rise in real GDP.
What is the impact of environmental regulations on real GDP?
While they may initially decrease real GDP due to compliance costs, they can lead to sustainable growth and long-term increases in real GDP.
How do subsidies for renewable energy affect real GDP?
They promote investment in green technologies, fostering innovation and potentially increasing real GDP in the long run.
What is the effect of increased spending on education and training programs on real GDP?
It enhances human capital, boosts productivity, and leads to long-term increases in real GDP.
What is Nominal GDP?
Total value of goods/services using current prices.
What is Real GDP?
A measure of economic growth adjusted for inflation using base year prices.
What is the GDP deflator?
Measures the overall price level in an economy; compares nominal GDP to real GDP.
What does the GDP deflator measure?
The overall price level in an economy.
What is the base year GDP deflator?
Always 100.
What is the purpose of Real GDP?
To give a more accurate picture of economic performance over time.
What is the formula for the GDP Deflator?
(Nominal GDP / Real GDP) * 100
How is the inflation rate calculated using the GDP deflator?
GDP Deflator - 100
Why is Nominal GDP not enough to measure economic growth?
It doesn't account for price changes (inflation).
What prices are used when calculating Real GDP?
Base year prices.