What is Real GDP and Nominal GDP and how do they compare. What are each used for?
In the US, historically, the real GDP has increased over time, while suffering recessions at varying times and lengths, yet has grown at about 3% per year. This type of comparison over many years is made possible by using the real GDP which removes the effects of price changes to the production of goods and services over time. Nominal GDP measures the total spending on goods and services in all markets of the economy. As GDP rises from year to year, this increase is from either a larger production of goods or the goods are being sold at higher prices. In order for economists to measure the production rate of goods and services independent of the prices of the goods the real GDP is figured and used to accurately compare one year to another.
To apply this method to a current event example could be if economists wanted to compare the spending of consumers on groceries during the economic downturn of 2008 with the housing bubble crash or during the recession caused by the shutting down of the economy due to COVID-19. As the cost of groceries has changed over the years, using a real GDP number will compare the spending on groceries but with current grocery prices for both time periods.
Real gross domestic product (GDP) decreased at an annual rate of 31.4 percent in the second quarter of 2020 (table 1), according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 5.0 percent.
Current‑dollar GDP decreased 34.3 percent, or $2.15 trillion, in the second quarter to a level of $19.41 trillion. In the first quarter, GDP decreased 3.4 percent, or $186.3 billion.
This information provided by the BEA.gov website.
COVID-19 is affecting all aspects of American lifestyles and those of citizens all over the globe. Balancing the countries GDP with its health is fraught with implications both known and unknown. One will affect the other and vice-versa.
One aspect of our economy which is proving to be troublesome is our reliance on consumer spending in the US. Our economy is driven by our spending and when we are not spending we are harming our economy. This is a detriment in a situation that we find our selves in now. We are unable to spend, because we have no work, without work, we do not spend which exacerbates the situation further. This is a over simplified example but I do feel that if we could remove our economy some from our spending on goods we could perhaps cushion some of the free falling economy. Of course, if we were more heavily into manufacturing, we could still be suffering as the world consumption is a fraction of pre-COVID-19
0 comments:
Post a Comment