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Economists call the value of goods and services measured at current prices
nominal GDP. Real GDP is the value of goods and services measured using a
constant set of prices:
Nominal GDP
Real GDP   100 %.
Price Index (3.4)
Nominal GDP is usually higher than real GDP because inflation is typically a
positive number. Nominal GDP is used when comparing different quarters of output
within the same year. When comparing the GDP of two or more years, real GDP is
used because, by removing the effects of inflation, the comparison of the different
years focuses solely on volume.

It is common to use GDP as a measure of economic welfare or standard of
living in a nation. When comparing the GDP of different nations for this purpose, two
issues immediately arise. First, the GDP of a country is measured in its own currency.
Thus, comparing GDP between two countries requires converting to a common
currency. A second issue is that countries have very different numbers of people. So,
if we are trying to compare standards of living across countries, we need to divide
GDP by population and find Per capita GDP, the main indicator of the average
person’s standard of living:
GDP
Per capita GDP  .
Population
(3.5)

GDP is an indicator of a society’s standard of living, but it is only a rough
indicator. GDP does not directly take account of leisure, environmental quality, levels
of health and education, activities conducted outside the market, changes in
inequality of income, increases in variety, increases in technology, or the (positive or
negative) value that society may place on certain types of output

ASSIGNMENTS

Choose the correct answer.
1 We are interested in long-term growth primarily because it brings:
a) higher price levels;
b) lower price levels;
c) higher standards of living;
d) trade wars with our trading partners.

2 When comparing nation's economic position with other one should consider
it’s:
a) GDP;
b) Per Capita GDP;
c) Currency in circulation;

d) None of the above.

3 Which of the following is NOT a component of the incomes approach to
GDP?
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