Scribd Logo
Upload

Welcome to Scribd!

  • 57 views

    Real Vs Nominal - (Gross National Product)

    Uploaded by

    Mohammad Mujahid
    Real GNP refers to gross national product adjusted for inflation to reflect the value of goods and services produced in constant prices of a base year. Nominal GNP reflects the total value of output in current prices and includes the effects of both real growth and price changes. To compare economic output over time, economists use real GNP which controls for differing price levels so the impact of inflation does not distort the assessment of real production. The document provides an example showing that while nominal GNP in India doubled from 1993-94 to 1998-99, the real GNP increase was smaller once adjusted for rising prices over that period.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Real Vs Nominal - (Gross National Product)

    Uploaded by

    Mohammad Mujahid
    57 views1 page
    Real GNP refers to gross national product adjusted for inflation to reflect the value of goods and services produced in constant prices of a base year. Nominal GNP reflects the total value of output in current prices and includes the effects of both real growth and price changes. To compare economic output over time, economists use real GNP which controls for differing price levels so the impact of inflation does not distort the assessment of real production. The document provides an example showing that while nominal GNP in India doubled from 1993-94 to 1998-99, the real GNP increase was smaller once adjusted for rising prices over that period.

    Original Description:

    Macro Notes

    Original Title

    Macro Notes

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Real GNP refers to gross national product adjusted for inflation to reflect the value of goods and services produced in constant prices of a base year. Nominal GNP reflects the total value of output in current prices and includes the effects of both real growth and price changes. To compare economic output over time, economists use real GNP which controls for differing price levels so the impact of inflation does not distort the assessment of real production. The document provides an example showing that while nominal GNP in India doubled from 1993-94 to 1998-99, the real GNP increase was smaller once adjusted for rising prices over that period.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    57 views1 page

    Real Vs Nominal - (Gross National Product)

    Uploaded by

    Mohammad Mujahid
    Real GNP refers to gross national product adjusted for inflation to reflect the value of goods and services produced in constant prices of a base year. Nominal GNP reflects the total value of output in current prices and includes the effects of both real growth and price changes. To compare economic output over time, economists use real GNP which controls for differing price levels so the impact of inflation does not distort the assessment of real production. The document provides an example showing that while nominal GNP in India doubled from 1993-94 to 1998-99, the real GNP increase was smaller once adjusted for rising prices over that period.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 1

    Real Vs Nominal-(Gross National Product)

    Its important to distinguish between real and nominal values of macroeconomics aggregates.
    When comparing data at different points in time, economists often use terms such as real wage, real
    income or real GNP.
    The real refers to the fact that data have been adjusted for change in level of prices. Thus real GNP is
    the GNP in current rupees deflated for changes in the prices of the items included in the GNP.
    In contrast, nominal GNP (or money GNP, as they are often called) is expressed in current rupees. It
    measures the value of output in given period in the price of that period, or as it is some times put, in
    current rupees.
    Over time, nominal values reflect changes both in a) the real size of an economics variable and b) the
    general level of prices. In contrast, real values eliminate the impact changes in the price level.
    Stated another way, real economic data are adjusted for changes in purchasing power of the rupee.
    Perhaps an example will clarify the difference between real and nominal values. In 1998-99 the nominal
    GNP in India was Rs 16, 01,065 crore, compared to only Rs. 7, 69,265 crore in India was 1993-94.
    Does this mean we produce two times as much output in 1993-94? Not hardly.
    In 1998-99 the general level of price was higher than the level of prices in 1993-94. Measured in terms of
    price level in 1993-94, real GNP in 1998-99 was worth Rs. 10, 71,073.
    Nominal GNP will increase either if a) more goods and services are produced or if b) prices rise. Often
    both a) and b) contribute to an increase in GNP.
    Since we are really interested in comparing only the output or actual production during two intervals, GNP
    must be adjusted for the changes in prices.
    A price index called GNP deflator is constructed to a price index to reveal the cost of purchasing the items
    included in GNP during the period relative to the cost of purchasing those same items during a base year
    (say 1993-94).
    Since the base year is assigned the value of 100, as the GNP deflator takes on values greater than 100, it
    indicates that prices have risen.
    The central statistical organization (CSO) estimates how much of each item included in GNP has been
    produced during a year.
    This bundle of goods will include automobiles, houses, office buildings, medical services, bread and all
    other goods included in GNP, in qualities actually produced during the current year.
    The agency then calculates the ratios of a) the cost of purchasing this representative bundle of goods at
    current price divided by b) the cost of purchasing the same bundle at the prices that were present during
    a designated base year.
    The base year chosen is given the value 100. The GNP deflator is equal to the calculated ratio multiplied
    by 100. If prices are, on average, higher during the current period than they were during the base year,
    the GNP deflator will exceed 100.
    The relative size of the GNP deflator is measure of the current price level compared to price level during
    the base year.
    A change in nominal GNP tell us nothing about what is happening to rate of real production unless we
    also know what is happening to prices. Money income could double while production actually declines, if
    prices more than double.
    On the other hand, money income could remain constant while real GNP increases, if prices fall during a
    time period.
    Data on money GNP and price changes are both essential for a meaningful duration a time period.
    Data on money GNP and price changes are both essential for a meaningful comparison of real income
    between two time periods.
    So we look at real rather than nominal GNP as basic measure for comparing output in different years.

    You might also like