The Difference Between Real GDP and Nominal GDP
The Difference Between Real GDP and Nominal GDP
Real GDP -value of all the goods and services produced in a country -values the production of goods and services at constant prices -is the same calculation of national output but is adjusted for inflation Nominal GDP - the value of all the goods and services produced expressed in current prices -value of all the goods and services produced expressed in the prices of some base year -values the production of goods and services at their current prices -calculation of national output using the quantity of the produced goods multiplied by the prices of that year Problem of national income statics Errors and Omissions - This is a problem as people hide what they earn and firms hide their output, to avoid paying tax, this is the black economy also known as the "ray gun" Over recording of figures (Double Counting) - This is losing all perks as you are not revived and incomes are being counted multiple times. This also affects firms as their output/produce is taken account for more than once Over Recording of incomes (Double Counting) - As people pay taxes their incomes are taking into account, and used to pay such things as benefits and pensions, if these are also counted sleight of hand is in progress. Uses of national income statics Level of Economic Welfare The national income estimate reveals the overall performance of the country during a given financial year. With the help of this statistics the per capita income i.e. the income earned by every individual is calculated. Rate of Economic Growth With the help of national income statistics we can know whether the economy is growing or declining. In simple words it helps us to know the conditions of a country economy Distribution of Wealth
One of the most important objectives that is achieved after calculating national income is to check its distribution among different categories of income such as wages, profits, rents and interest. It helps to understand that how well the income is distributed among the various factors of the economy and their distribution among the people as well. Ease in Planning Since the national income estimates also contain the figures of saving, consumption and investment in the economy so it proves to be a valuable guide to economic policy relating to planning and active government intervention in the economy. The estimates are used as a data for future planning also. Formation of Budget Budget is an effective tool for planning and control. It is prepared in the light of the information regarding consumption, saving, and investments which are all provided by the national income estimates. Further we can evaluate the achievements or otherwise of the development targets laid down in the plans from the changes in national income and its various components. Conclusion Thus we may conclude that national income statistics chart the movement of a country from depression to prosperity its rate of economic growth and its standard of living in comparison with rest of the world.