economics essay
Discuss 4 reasons, why using percentage change in Nominal GDP is an inadequate measure of Economic Growth? Nominal GDP (Gross Domestic Product) measures the total value of goods and services produced by an economy over a period of time, which is normally one annum, and is not adjusted. There are factors which means that the fact the Nominal GDP is not adjusted makes it an inadequate measure of economic growth. Economic growth is the increase in the amount of the goods and services produced by an economy over time, and both positive and negative growth can be shown on a production possibility frontier. Positive capacity growth negative capacity growth
The most important factor making Nominal GDP inaccurate is the influence of inflation as it can have such a large effect on the GDP meaning that excluding it is inexact. Furthermore the effect of population Growth in any country can also change the GDP and because the Nominal GDP does not account for this it becomes less reliable. Moreover an increase in quality in goods and services as well as the illegal and black markets can also change the GDP. The effect of inflation on GDP is the main factor that makes Nominal GDP inaccurate. Inflation means a sustained increase in the aggregate or general price level in an economy. Inflation means there is an increase in the cost of living. The UK at the moment is experiencing an inflation of 3%, the effect this has on GDP is significant. For example if the Nominal GDP figure has shot up 8% but inflation has been 4%, the ‘Real GDP’ has only increased 4%. However the Nominal GDP figure would still show 8% economic growth and that isn’t accurate. Furthermore it makes it a problem to check the value of goods and services because a rise in general price level can make it look like production of goods has increased when in fact it is just inflation. This is one of the main reasons why the Nominal GDP in the UK in 2012 was $2,429,184 but is likely
The most important factor making Nominal GDP inaccurate is the influence of inflation as it can have such a large effect on the GDP meaning that excluding it is inexact. Furthermore the effect of population Growth in any country can also change the GDP and because the Nominal GDP does not account for this it becomes less reliable. Moreover an increase in quality in goods and services as well as the illegal and black markets can also change the GDP. The effect of inflation on GDP is the main factor that makes Nominal GDP inaccurate. Inflation means a sustained increase in the aggregate or general price level in an economy. Inflation means there is an increase in the cost of living. The UK at the moment is experiencing an inflation of 3%, the effect this has on GDP is significant. For example if the Nominal GDP figure has shot up 8% but inflation has been 4%, the ‘Real GDP’ has only increased 4%. However the Nominal GDP figure would still show 8% economic growth and that isn’t accurate. Furthermore it makes it a problem to check the value of goods and services because a rise in general price level can make it look like production of goods has increased when in fact it is just inflation. This is one of the main reasons why the Nominal GDP in the UK in 2012 was $2,429,184 but is likely