OT - quick econ question

zums · 02-03-2004, 10:57 AM

Could someone help me out and briefly explain how nominal GDP can increase while real GDP can decrease in the same period? I just need a short explanation and I am struggling with what is supposed to be a simple question. Any help or something that would clear it up for me would be awesome. thanks

-zums

damnMikeBrown · 02-03-2004, 11:00 AM

Nomial GDP increasing-the country is producing more $$'s worth of stuff

Real GDP going downwards-the increased $$'s worth of stuff they're producing, doesn't buy as much as it did before. It's worth less.

zums · 02-03-2004, 11:04 AM

Why is the more stuff produced worth less? Is this due to inflation costs?

-zums

Huckleberry · 02-03-2004, 11:05 AM

1980 - Nation A has a GDP of 100 billion Huckledollars.

2000 - Nation A has a GDP of 120 billion Huckledollars.

However, 120 billion Huckledollars in 2000 in real dollars is the equivalent of 80 billion Huckledollars in 1980.

Therefore, looking at it from the year 1980, Nation A's GDP increased 20 billion nominal Huckledollars over the next 20 years but decreased 20 billion real Huckledollars over the next 20 years.

Huckleberry · 02-03-2004, 11:05 AM

Quote:

Originally Posted by zums

Why is the more stuff produced worth less? Is this due to inflation costs?

-zums

Basically, yes.

damnMikeBrown · 02-03-2004, 11:09 AM

Yup, it's due to inflation. Huckle did a much better job illustrating the point. I was just excited to see an econ question on the boards and hurried to get out the first salvo

zums · 02-03-2004, 11:11 AM

lol well i appreciate the quick responses - saves me a trip back to my apt to finish this assignment, i can just turn it in now and save a trip in the cold and snow!!!

thanks again

-zums

QuikSand · 02-03-2004, 01:15 PM

Whenever economists talk about things as "nominal" and "real" - the difference is inflation.

Economists hate to measure things in nominal terms -- the simple rate by which things change. This is because in an overall economy which has movement in prices overall, that nominal change doesn't really illustrate very much.

Say you got a 3% raise this year. So what. That doesn't tell the economist anything, really. The economist doesn't have an objective way to say whether you are better off or worse off -- since it's not the number of dollars that matters, it's how many tubes of toothpaste and gallons of gas and shiatsu massages you can buy with them. Now, if I know that the cost of the things that you purchase with your salary only went up 1% this year, then I now know that you essentially have 2% more buying power with your paycheck than you did last year. Now the economist feels like he knows something.

The 3% raise is a nominal figure - just simply how many more dollars.

The 2% increase in buying power is a real figure - telling us how much better off you are.

sooner333 · 02-03-2004, 02:16 PM

Having just taken my first econ midterm today, I can tell you that all of these guys are correct. RGDP can go down even though NGDP goes up. Inflation is the key. You're making the same stuff, it is worth less in last years dollars than it is now, but because of inflation, it costs more.

Let's say I buy a house for $200,000. Next Year, with inflation at 50%, the house costs $300,000. In last year's terms, it should still be around $200,000; I didn't remodel, or really do anything at all to the house. It got a year older, but I made the repairs to keep it about the same condition I bought it in. All in all, the house is the same. Thus the Real Price of the house would still be $200,000 using last year as the base year. However, the Nominal price of the house would be $300,000. (Basically, you can make a lot of money predicting periods of high, unexpected inflation by just borrowing a lot of money, but that's another story...not to mention risky.)

02-03-2004, 11:05 AM	#4
Huckleberry College Starter Join Date: Dec 2001	1980 - Nation A has a GDP of 100 billion Huckledollars. 2000 - Nation A has a GDP of 120 billion Huckledollars. However, 120 billion Huckledollars in 2000 in real dollars is the equivalent of 80 billion Huckledollars in 1980. Therefore, looking at it from the year 1980, Nation A's GDP increased 20 billion nominal Huckledollars over the next 20 years but decreased 20 billion real Huckledollars over the next 20 years. __________________ The one thing all your failed relationships have in common is you. The Barking Carnival (Longhorn-centered sports blog) College Football Adjusted Stats and Ratings Last edited by Huckleberry : 02-03-2004 at 11:06 AM.

02-03-2004, 11:00 AM	#2
damnMikeBrown College Benchwarmer Join Date: Jan 2003 Location: Cincinnati, OH	Nomial GDP increasing-the country is producing more $$'s worth of stuff Real GDP going downwards-the increased $$'s worth of stuff they're producing, doesn't buy as much as it did before. It's worth less.

02-03-2004, 11:04 AM	#3
zums H.S. Freshman Team Join Date: Dec 2000	Why is the more stuff produced worth less? Is this due to inflation costs? -zums

02-03-2004, 11:09 AM	#6
damnMikeBrown College Benchwarmer Join Date: Jan 2003 Location: Cincinnati, OH	Yup, it's due to inflation. Huckle did a much better job illustrating the point. I was just excited to see an econ question on the boards and hurried to get out the first salvo

02-03-2004, 11:11 AM	#7
zums H.S. Freshman Team Join Date: Dec 2000	lol well i appreciate the quick responses - saves me a trip back to my apt to finish this assignment, i can just turn it in now and save a trip in the cold and snow!!! thanks again -zums

02-03-2004, 01:15 PM	#8
QuikSand lolzcat Join Date: Oct 2000 Location: Annapolis, Md	Whenever economists talk about things as "nominal" and "real" - the difference is inflation. Economists hate to measure things in nominal terms -- the simple rate by which things change. This is because in an overall economy which has movement in prices overall, that nominal change doesn't really illustrate very much. Say you got a 3% raise this year. So what. That doesn't tell the economist anything, really. The economist doesn't have an objective way to say whether you are better off or worse off -- since it's not the number of dollars that matters, it's how many tubes of toothpaste and gallons of gas and shiatsu massages you can buy with them. Now, if I know that the cost of the things that you purchase with your salary only went up 1% this year, then I now know that you essentially have 2% more buying power with your paycheck than you did last year. Now the economist feels like he knows something. The 3% raise is a nominal figure - just simply how many more dollars. The 2% increase in buying power is a real figure - telling us how much better off you are.

02-03-2004, 02:16 PM	#9
sooner333 College Starter Join Date: Oct 2000 Location: Norman, OK	Having just taken my first econ midterm today, I can tell you that all of these guys are correct. RGDP can go down even though NGDP goes up. Inflation is the key. You're making the same stuff, it is worth less in last years dollars than it is now, but because of inflation, it costs more. Let's say I buy a house for $200,000. Next Year, with inflation at 50%, the house costs $300,000. In last year's terms, it should still be around $200,000; I didn't remodel, or really do anything at all to the house. It got a year older, but I made the repairs to keep it about the same condition I bought it in. All in all, the house is the same. Thus the Real Price of the house would still be $200,000 using last year as the base year. However, the Nominal price of the house would be $300,000. (Basically, you can make a lot of money predicting periods of high, unexpected inflation by just borrowing a lot of money, but that's another story...not to mention risky.)

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