Reference no: EM132836132

My professor posted the below post, in what way could I add on to his post or respond? Thanks for the help and examples!

GDP was never designed to cover things like national happiness, measures of fulfillment, income equality or inequality, security, etc. In short, it does a pretty good job for what it was designed to do.

The key problem in adding other "things to be measured" is that happiness, security, etc, are subjective measures of "very difficult to quantify" concepts. Whereas the price of a good or service at its sale to the ultimate/final/end user is quite objective.

What is key, is that by following a consistent process (same collection methodology, same definitions of final goods and services, etc.) the numbers we get may not be completely accurate but the differences between years will be accurate, because any collection errors are the same each year.

Nominal GDP is GDP at the then current prices. So the 2017 Nominal GDP is based on 2017's prices for those goods and services.

Real GDP is Nominal GDP corrected for the impact of inflation. In other words, we have taken Nominal GDP and removed the impact of any increase in prices. In doing so we can recalculate the prices of nominal GDP for all years in terms of a "base year" and then when compare different years' Real GDP any changes in value represent actual changes in economic activity (growth or decline in the economy).

So Real GDP gives us an excellent "speedometer" for the economy. It can tell us if the economy is growing or shrinking, and by how much. It is how we define recessions and depressions and periods of economic growth.

And that is very important to know, just as the speedometer gives very important information on our car's dashboard.