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The increase in GDP over time has two components -- real growth in economic activity, and inflation. Inflation affects GDP because GDP is measured in dollars (or some other country's currency as appropriate), therefore dollar-inflation by itself would cause an apparent increase in GDP.
Economists generally correct for inflation and discuss "real GDP" when talking about economic growth. Nominal GDP is the number we "see" and count every quarter, and it's then corrected for inflation to arrive at real GDP growth, which is then reported by the government. But nevertheless, inflation alone makes the nominal GDP grow even without real growth.
I.e., if you were to pull out a news article reporting the GDP from 10 or 15 years ago, the stated number would be so much lower than now, that REAL economic growth cannot account for the increase between now and then. Much of the increase is due to inflation, because that report would be reporting the GDP then, based on that era's dollar-values. - by Spotty j from Yahoo . I did not make this up. the credit for this goes to spotty j
Your question needs elaboration because inflation does not necessarily affect GDP. Inflation is the measure of a sustained increase in prices over a long period of time.
GDP is the amount of the market value of all final goods and services produced within a country in a given period of time: GDP = consumption + investment + government spending + (exports − imports).
Attached is a link to the Federal Reserve Bank which illustrates in easy terms how inflation works in the overall economy.
As Yahoo questions go, this is intense stuff! Maybe you should try People Magazine to pique your interests.
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Explain real GDP vs potential GDP?
Potential GDP is the total numerical value of GDP before inflation is counted in. Real GDP is nominal GDP adjusted for inflation
What are the effect of a rising GDP?
Rising GDP (Gross Domestic Product) creates an increase in the money supply. However the stock market needs an increase in GDP to make profits, and to much GDP causes higher inflation which is a big concern in China. The easy way to define inflation is, if inflation increases by 8% and your pay check only increases by 4% in that same year, your money is now worth 4% less than the previous year.
When nominal GDP is less than real GDP is this inflation or deflation?
deflation
Real GDP is nominal GDP adjusted for inflation true or false?
yes
How does inflation affect GDP?
Inflation is the primary and negative factor of all economic troubles including GDP,because it lowers consumerism, promote unemployment, and reduce import and export.-- Not quite. Inflation itself isn't necessarily a bad thing, and in fact deflation (negative price growth) can adversely affect the economy is well. High inflation can certainly hurt spending and employment, but inflation is just a term used for the growth rate of prices, which happens naturally as economies expand. The US Federal Reserve targets an inflation rate of 2-3% as a goal. Inflation has historically been a major concern in some of the developing world especially, and source of economic (and political) instability. (Source: Economics PhD student who just finished grading a paper that cited the above answer)
Explain real GDP vs potential GDP?
Potential GDP is the total numerical value of GDP before inflation is counted in. Real GDP is nominal GDP adjusted for inflation
What are the effect of a rising GDP?
Rising GDP (Gross Domestic Product) creates an increase in the money supply. However the stock market needs an increase in GDP to make profits, and to much GDP causes higher inflation which is a big concern in China. The easy way to define inflation is, if inflation increases by 8% and your pay check only increases by 4% in that same year, your money is now worth 4% less than the previous year.
When nominal GDP is less than real GDP is this inflation or deflation?
deflation
Real GDP is nominal GDP adjusted for inflation true or false?
yes
How does inflation affect GDP?
Inflation is the primary and negative factor of all economic troubles including GDP,because it lowers consumerism, promote unemployment, and reduce import and export.-- Not quite. Inflation itself isn't necessarily a bad thing, and in fact deflation (negative price growth) can adversely affect the economy is well. High inflation can certainly hurt spending and employment, but inflation is just a term used for the growth rate of prices, which happens naturally as economies expand. The US Federal Reserve targets an inflation rate of 2-3% as a goal. Inflation has historically been a major concern in some of the developing world especially, and source of economic (and political) instability. (Source: Economics PhD student who just finished grading a paper that cited the above answer)
What are the components of GDP and the difference between real and nominal GDP?
GDP = Consumption + Investment + Govt. spending + net exports (exports - imports). Real GDP is the value of GDP shown in base period dollars, without the effects of inflation and price changes. Nomnal GDP is value of GDP adjusted for inflation.
Why is it important to adjust GDP for inflation?
Cg
What is the effect of declining interest rate on employment GDP inflation and foreign sector?
Declining interest rate can have some effect,like increasing unemployement Rate,increase poverty.
Why has the nominal GDP increased faster than real GDP in the US over time?
The real GDP is influenced by inflation.
What are the causes through which nominal GDP had doubled overnight?
through inflation as nominal GDP does not account for it
Why does the GDP deflator give a different rate of inflation than does the CPI?
The GDP Deflator uses the GDP calculation to work out inflation while CPI uses a basket of goods that are compared over time to work out the increase in prices
What has been adjusted to remove inflation is called nominal GDP?
A gross domestic product (GDP) value that is at face value and has not been adjusted in any way, for inflation or any other reason, is known as a "nominal GDP." It is sometimes also called a "current dollar GDP."
