Nominal vs. Real GDP
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"Are you better off today than you were 4 years ago? What about 40 years ago?" These sorts of questions invite a different kind of query: what exactly do we mean, when we say “better off?” And more importantly, how do we know if we’re better off or not? To those questions, there’s one figure that can shed at least a partial light: real GDP. In the previous video, you learned about how to compute GDP. But what you learned to compute was a very particular kind: the nominal GDP, which isn’t adjusted for inflation, and doesn’t account for increases in the population. A lack of these controls produces a kind of mirage. For example, compare the US nominal GDP in 1950. It was roughly $320 billion. Pretty good, right? Now compare that with 2015’s nominal GDP: over $17 trillion. That’s 55 times bigger than in 1950! But wait. Prices have also increased since 1950. A loaf of bread, which used to cost a dime, now costs a couple dollars. Think back to how GDP is computed. Do you see how price increases impact GDP? When prices go up, nominal GDP might go up, even if there hasn’t been any real growth in the production of goods and services. Not to mention, the US population has also increased since 1950. As we said before: without proper controls in place, even if you know how to compute for nominal GDP, all you get is a mirage. So, how do you calculate real GDP? That’s what you’ll learn today. In this video, we’ll walk you through the factors that go into the computation of real GDP. We’ll show you how to distinguish between nominal GDP, which can balloon via rising prices, and real GDP—a figure built on the production of either more goods and services, or more valuable kinds of them. This way, you’ll learn to distinguish between inflation-driven GDP, and improvement-driven GDP. Oh, and we’ll also show you a handy little tool named FRED — the Federal Reserve Economic Data website. FRED will help you study how real GDP has changed over the years. It’ll show you what it looks like during healthy times, and during recessions. FRED will help you answer the question, “If prices hadn’t changed, how much would GDP truly have increased?” FRED will also show you how to account for population, by helping you compute a key figure: real GDP per capita. Once you learn all this, not only will you see past the the nominal GDP-mirage, but you’ll also get an idea of how to answer our central question: "Are we better off than we were all those years ago?" Macroeconomics Course: http://bit.ly/1R1PL5x Ask a question about the video: http://bit.ly/24pzD7X Next video: http://bit.ly/1TGgR8r Help us caption & translate this video! http://amara.org/v/H0PX/
Comments
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could you do a video which includes more countries as an example of income distribution rate
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just love it the way you explained so easily
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I have to say thank you, sir. You have helped me a lot with my school project
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Thank you sir. It is crystal clear now.
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superb
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Thank you sir. This is the first time I clearly understand the difference between real gdp, nominal gdp, and real gdp per capita. Also, where does GDP (PPP) fall in this picture? Wikipedia shows this for category for countries as well.
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is remittance gdp??
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i cant believe people find economics interesting
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This made everything make so much more sense. Thank you!!
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On the practice questions, it says it is "false" that nominal GDP is always larger than real GDP... how can this be? Seems to me that not adjusting for the current year's prices will always make nominal GDP significantly higher?
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you sir could darken the subtitle to make it more readable. Because it is hard to read with that kind of contrast in the background, but over all, thank you for the info this is very useful.
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I have a report on this this friday fml
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This is perfect! Thank you so much!
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Really, needs of the time.
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Let's say: if you want to assess the growth of productivity of a certain country during a period of time - use PPP GDP figures, BUT if you want to compare current productivity of say two countries against each other - use nominal GDP figures. Any opinions?
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So is inflation 4,600% more than in 1950? (55-8)
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So how can you find real gdp from nominal? By using using FRED?
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Have you examined the fact that capita is only decided by people living in a residence, during the census? and that an unknowable amount of people are undocumented in that, due to the fact that you cannot find every person who does not live at an established residence with an address?
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Why the 2009 dollar and not 2015 dollar to measure real GDP? Thank you so much for the video.
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