Gross domestic product refers to the valuation of goods and services produced in a country which are done by the nominal gross domestic products which are reckoned to be the measurement of the value of goods and services produced and expressed as per the current prices and real gross domestic products. It all measures the value of all the goods and services produced and expressed in the prices of some of the base year (Moffat 2001).
Taking into account the collected data from the year 200, it is possible to note that the economic situation in the country has greatly increased and succeeded producing the goods and the necessary services of about 100 billion that had actually happened thanks to the prices of the same mentioned year (Blades and leguiller 2004).
Since we have taking the 200 year for the analysis, it can be noted that the nominal and the real GDP stand on the same level (Cliff Notes. com 2011). Looking back at the year 2001, the economy was actively developing constantly producing the services as well as the goods that were actually based on the prices of the 2001 year. The same goods and services are valued instead of 105 billion dollars, if year 2000 prices are used, then:
Year 2000 Nominal GDP=$100B, Real GDP=$100B
Year 2001 Nominal GDP =$ 110B, Real GDP=$105B
Nominal GDP Growth Rate=10%
Real GDP Growth Rate= 5%.
Nominal GDP refers to the valuation of all goods and services produced in an economy during a given year, calculated by using the prices current in the year in which the output is produced and, on the other hand, Real GDP is the value of the final produce calculated using the prices of some base year (U.S commerce department 2002).
Real GDP has being of a great importance to the society because it measures what is really being produced; Nominal GDP is calculated at existing prices whereas Real GDP is nominal GDP adjusted to the inflation (U.S commerce department, 2002).
The Real GDP is an indicator of economic growth and also an indicator of recessions which is an indication that Real GDP should be used for economic analysis instead of Nominal GDP. The rate of growth of the economy is given as the annual rate of change of real GDP (Mankiws, 2000).
According to Lequiller (2004), much is expected of Real GDP which is perhaps a misunderstanding indicator. From the world statistics real GDP is a controversial icon. The reasons which explain why the Real GDP is not a good measure of economic welfare is because it measures rather income but not equality; it also measures the growth but not destruction and it ignores values such as social cohesion and the environment.
Source: CIA World fact book 1st Jan 2011
Source: Australian Historical consumer price index (CPI)
When unemployment rate is high, the Real GDP is low and the inflation rate slows down. When the real GDP is constant, the inflation rate follows the same trend and the natural rate of unemployment is not necessarily constant (Mc Graw Hill Companies., 2002). When the Real GDP is high, the unemployment rate is low and the inflation rate accelerates. When the Real GDP is low, many people lose their jobs and the unemployment rate is high. Therefore, higher unemployment rate is necessary to keep inflation from accelerating.
Reference List
Blades, D., and Lequiller F., 2004. Compatibilite nationale manuel pour etudiants. Paris: Economica.
Cliffs Notes.com., 2011. Nominal GDP, Real GDP and Price level, Cliffs Notes Web.
Mankiw, G. N., 2000. Principles of macroeconomics, 2nd ed. USA: Harvard University.
Mc Graw Hill Companies., 2002. U.S commerce department. The Mc Graw Hill Companies Web.
Moffat, M., 2011. Former About.com guide. About.com Economics Web.