Economists prefer to compare real GDP figures for different years instead of nominal GDP figures. Why?

Answer 1

Nominal GDP will look like it is growing because of inflation.

When you compare the 1960 GDP with the 1980 GDP, you need to make sure that you are comparing apples to apples. A dollar in 1960 bought about half of what it bought in 1980.

When you account for inflation the numbers are:
1970: 4 trillion
1980: 5.25 trillion
we see a growth of about 3% each year

Compare this with the nominal GDP numbers:
1970: about 1 trillion
1980: about 2.75 trillion
we see a growth of about 18% each year

What is the difference? Inflation throughout the decade accounts for the additional 15% of growth in nominal GDP numbers. If you don't have numbers that remove the effects of inflation, you will wildly overestimate the growth of the economy.

Hope this helps,
Good luck!

Answer 2

Suppose in Year 1 there was a certain amount of real economic activity -- a certain amount of goods and services were produced -- and the resulting nominal GDP was 10.0 trillion dollars.

Now suppose that in Year 2, EXACTLY the same amount of economic activity occurred. But because of inflation, everything has a price tag 5% higher. So the resulting nominal GDP is 10.5 trillion dollars.

It tells us nothing useful to say the economy "grew" 5% from year 1 to 2. Because nothing actually grew, except inflation. Economists want to know whether or not there is REAL growth in goods and services

And so they do this by correcting for inflation, and they call that "real" GDP growth. In this example they'd say the economy had zero real growth in GDP from year 1 to 2.

Answer 3

in view that we've thousands and thousands of people out of artwork because of the inept Bush economic regulations. And we are purely into the seventh. Month of the Obama administration, i will think of the GDP would be dropping. whilst a usa isn't generating, it’s difficult to have stable GDP numbers. That graph isn't reflecting any of the factors that bypass into one in each of those selection. How approximately we assessment this question lower back after President Obama has been out of workplace for 7 Months? feels like the excellent thank you to income the two, to me.