What is the difference between real and nominal GDP and why do economists make this distinction?
What will be an ideal response?
Real GDP is a measure of the final goods and services produced in a year valued at constant prices. Nominal GDP is the final goods and services produced in a year valued at the prices that existed during the year. Economists make the distinction between real GDP and nominal GDP because nominal GDP changes for two reasons: When the production of goods and services changes and when the prices of the goods and services change. Economists want to be able to distinguish between changes brought about by production changes and changes brought about by price changes. Real GDP allows economists to make this distinction. In particular, by using prices that are constant, a change in real GDP represents a change in the production of goods and services and factors out the change in prices. Thus real GDP removes the effect from changes in prices and thereby reveals the change in the underlying production of goods and services.
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Janelle spends all of her income on songs from iTunes ($1 each) and applications ($5 each) for her iTouch. If she makes her best affordable choice, she purchases 20 songs and 4 applications, what is her income?
A) $40 B) $20 C) $30 D) $25
When a business is set up as a partnership, the owners of the business face limited liability
Indicate whether the statement is true or false
The coefficients of the VAR are estimated by
A) using a simultaneous estimation method such as TSLS. B) maximum likelihood. C) panel methods. D) estimating each of the equations by OLS.
In the fifteenth and sixteenth centuries, most towns prohibited individuals from accumulating stocks of grain. Since such individuals sold the grain and profited greatly during food shortages, they were considered to be exploiting people in need. The result of this prohibition was
a. wilder fluctuation in the price of grain. b. more grain shortages. c. losses to farmers in a good crop year. d. All of the above are correct.