nominal gdp

Examples of nominal gdp in the following topics:

• The GDP Deflator

  • The GDP deflator is a price index that measures inflation or deflation in an economy by calculating a ratio of nominal GDP to real GDP.
  • In other words, real GDP is nominal GDP adjusted for inflation.
  • If there is no inflation or deflation, nominal GDP will be the same as real GDP.
  • The GDP deflator is calculated by dividing nominal GDP by real GDP and multiplying by 100 .
  • It is calculated by dividing nominal GDP by real GDP and multiplying by 100.

• Calculating Real GDP

  • Real GDP growth is the value of all goods produced in a given year; nominal GDP is value of all the goods taking price changes into account.
  • The nominal GDP is the value of all the final goods and services that an economy produced during a given year.
  • Real GDP, therefore, accounts for the fact that if prices change but output doesn't, nominal GDP would change.
  • It transforms the money-value measure, nominal GDP, into an index for quantity of total output.
  • This image shows the nominal GDP for a given year in the United States.

• Time Lags and Targets

  • The GDP needs two consecutive quarters of negative GDP growth before a recession is declared.
  • Nominal GDP: If an economy produces more goods and services, then both real and nominal GDP increase.
  • If inflation causes higher prices, subsequently, the greater prices increase nominal GDP, but have no effect on real GDP.
  • Some economists believe the Fed cannot influence real GDP, but it can affect the inflation rate, which in turn affects the nominal GDP.
  • If the Fed selected nominal GDP as an intermediate target, then the Fed would be focusing on price stability indirectly.

• Central Banks

  • Economists calculate both the nominal GDP and real GDP.
  • Nominal GDP includes the impact of inflation.
  • For example, if economy experiences inflation, or firms produce more goods and services during a year, then the nominal GDP rises.
  • When the real GDP increases, it means firms in society have produced more goods and services while inflation does not affect real GDP.
  • Finally, economists define many variables in real or nominal terms, such as interest rates and wage rates, which we explain later in this book.

• Relationship Between Expectations and Inflation

  • Anything that is nominal is a stated aspect.
  • This is the nominal, or stated, interest rate.
  • The difference between real and nominal extends beyond interest rates.
  • In an earlier atom, the difference between real GDP and nominal GDP was discussed.
  • Consequently, employers hire more workers to produce more output, lowering the unemployment rate and increasing real GDP.

• Growth in the Rest of the World

  • 2007: The nominal GDP expanded in 183 countries.
  • The GDP in 1830 was £41,373.
  • A growth rate of 2.5% a year leads to a doubling of the GDP within 29 years.
  • A growth rate of 8% a year leads to a doubling of the GDP in 10 years.
  • This image shows the share of GDP worldwide.

• Economic measures

  • The Gross Domestic Product or GDP of a country is a measure of the size of its economy.
  • While often useful, it should be noted that GDP only includes economic activity for which money is exchanged.
  • GDP and GDP per capita are widely used indicators of a country's wealth.
  • The map below shows GDP per capita of countries around the world:
  • A map of world economies by size of GDP (nominal) in $US, CIA World Factbook, 2012.

• Growth in the United States

  • In 2013, the estimated GDP was $16.6 trillion, which is a quarter of the nominal global GDP.
  • The 1973 oil crisis caused the GDP to fall 3.7%.
  • The GDP fell again in late 1973 to 1975 (3.1%).
  • 1980s: the U.S. share of the world GDP peaked in 1985 with 23.78% of global GDP.
  • The GDP per capita is the ratio of the GDP to the population.

• Macroeconomic Factors Influencing the Interest Rate

  • Taylor explained the rule of determining interest rates using three variables: inflation rate, GDP growth, and the real interest rate.
  • According to Taylor's original version of the rule, the nominal interest rate should respond to divergences of actual inflation rates from target inflation rates and of actual Gross Domestic Product (GDP) from potential GDP:
  • In this equation, it is the target short-term nominal interest rate (e.g., the federal fund rates in the United States), πt is the rate of inflation as measured by the GDP deflator, π*t is the desired rate of inflation, r*t is the assumed equilibrium real interest rate, yt is the logarithm of real GDP, and y*t is the logarithm of potential output, as determined by a linear trend.
  • The GDP gap or the output gap is (yt - y*t).
  • Describe how the nominal interest rate is influenced by inflation, output, and other economic conditions

• Growth Economics

  • By itself, GDP doesn't necessarily tell us much about the state of the economy, but change in GDP does.
  • It is conventionally measured as the percent rate of increase in real GDP.
  • Economic growth is measured as a percentage change in the GDP or Gross National Product (GNP).
  • As an example of measuring economic growth, a country that creates $9,000,000,000 in goods and services in 2010 and then creates $9,090,000,000 in 2011 has a nominal economic growth rate of 1% for 2011.
  • If no adjustment was made for inflation, the table might make no mention of inflation-adjustment, or might mention that the prices are nominal.