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Fundamentals of Macroeconomics Paper
March 17, 2014
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Fundamentals of Macroeconomics Paper: Part I
Gross Domestic Products or GDP is a measure that is used in Macroeconomics to measure the welfare of a country within a specific time frame. In most cases GDP is calculated each year and it takes factors such as, imports, exports, investments, and the compositions made from citizens of that specific country within that specific time frame. There is one simple reason why GDP is calculated each year, it helps determine whether the country is in a good health financial situation or not. There are two different types which are used in Macroeconomics these two are: Real GDP and nominal GDP although, both serve a common goal there are different characteristics that set real and nominal GDP apart.
Real GDP Real GDP is the most accurate form to calculate the gross domestic product of a country. The reason for this is that when economists calculate the GDP of one country using real GDP the changes in the value of currency used for that country. Hence, because value changes so does GDP needs to change; not factoring changes in the economy result into an inaccurate calculation of GDP. Fro that reason real GDP also takes into account the changes in inflation or deflation thus, the final GDP results are more accurate than the results of any other method.
Nominal GDP Although used as a method to calculate GDP, nominal GDP is not accurate unless however, there are absolutely no changes in the economy in terms of inflation. Nominal GDP in other words, is a simple sum that has not taken changes into account thus, this method can sometimes be misleading and its results are usually higher than what it should really be. In conclusion, the fact that nominal GDP does not take inflation into account whereas real GDP does is the main differences between the two methods of

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