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# Consider a simple economy that produces two goods: pens and muffins. The following table shows

Home Consider a simple economy that produces two goods: pens and muffins. The following table shows

#### Consider a simple economy that produces two goods: pens and muffins. The following table shows

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• 01/02/2019

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Gross domestic product is the economic value of the goods and services produced in the national boundary of the country. The nominal GDP is the total value of the economic output of the year. The value of the nominal GDP is calculated with the prices of the current year. As in the question the nominal value of GDP in year 2018 was 485. In the year 2009, the value was 1120, because the value of the goods and services are valued on the current prices of the market.

On the other hand, the Real GDP is valued with the rate of the base year. In this question year 2008 is taken as the base year. Thus the value of the following years is calculated with the rate of the base year. Real GDP is also known as the inflation adjusted GDP, because it considers the impact of the inflation on the prices of the goods and services and adjust it as per the prices of the base year. Thus, the real GDP is more acceptable measure, through which we can determine the growth of the economy.

Thus, in the year 2008 the production of the pens and envelops was of \$485, in the year 2009, the production has been increased to 560, the production has been increased by 75 units. In 2010, again the production has been decreased to 480. Therefore, we can measure the output of the economy with the Real GDP measure. Whether the economy has grown or not, which is not possible with the nominal GDP.

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