8-24-2007 - Economics: 8/24/2007 Chapter 5- Production,...

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Economics: 8/24/2007 Chapter 5- Production, Income and Employment (Cont.) Nominal vs. Real GDP - GDP is measured in dollars, and as a result, a problem exists when tracking changes in output OVER TIME. Ex: - Country of Freedonia has one good. A Widget. o In 2003 they produced 100 widgets at $1 a widget. Their dollar (nominal) GDP is $100. o In 2004 they produced 100 widgets at $2 a widget. Their dollar (nominal) GDP is $200. They must correct for the effects of inflation. Economists make two decisions: - Nominal - current dollar value, uncorrected for the effects of inflation and any change in money’s purchasing power. - Real Value - corrects for the effects of inflation and any change in money’s purchasing power. This allows for variables to be compared across time. ( Focus exclusively on Real Value) Problems with GDP ( Understated for today) - Imperfect measure of overall activity and economic well-being. 1.
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This note was uploaded on 03/18/2008 for the course ECON 2006 taught by Professor Rdcothren during the Fall '08 term at Virginia Tech.

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8-24-2007 - Economics: 8/24/2007 Chapter 5- Production,...

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