Economists prefer to use Real GDP figures for different years instead of comparing GDP figures. Why is that?

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Economists prefer to use Real GDP figures for different years instead of comparing GDP figures. Why is that?

2007-11-14 12:06:06 · 2 answers · asked by Darkangel 2 in Social Science ➔ Economics

2 answers

The reason is that the general level of prices change. "Real" GDP (or wages or any other mearsurement in value terms) means that the value has been adjusted for the change in prices. Exmple: Suppose you earned 1000/mo in 1970 when gasoline was ) and read was 0.25/loaf (and other prices were similarly small). Now you earn 5000/mo and bread costs 1.00.loaf and other things are similar. We might say that your "real" earnings (or your earnings in "1970 dollars") have gone up by just (5000/1000) /(1.00/.25) = 25%.

2007-11-14 13:07:04 · answer #1 · answered by Wordy Economist 2 · 1⤊ 0⤋

Inflation?

2007-11-14 20:19:19 · answer #2 · answered by Buying is Voting 7 · 0⤊ 2⤋