Real GDP and nominal GDP | GDP: Measuring national income | Macroeconomics | Khan Academy
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Using real GDP as a measure of actual productivity growth
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Macroeconomics on Khan Academy: Topics covered in a traditional college level introductory macroeconomics course
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You lost me after apples
actually, that technic, even if the example was with apples or bananas or PCs, is so efficient and gives you the main idea of what Real GDP is so simple!
I'm lost laughing after your comments.
😂😂
Watch it again bro. It will make sense in a while trust me
I know it's been 4 years since you commented, but I would like to explain what I understood just to be clear:
Nominal GDP is the amount (in dollars) made in sales of a product THAT SAME YEAR. Real GDP is the amount made in sales of a product, BUT using the price of the BASE YEAR, not THAT SAME YEAR's price.
So with the apples example, let's say that 10 apples were sold in year 1 (aka base year) for $1 each; the nominal GDP (and real GDP for that matter) is $10 because 10 apples for $1 each is $10 dollars. NOW, let's say that in year 2, we sold 20 apples for $2 each. The nominal GDP for year 2 would be $40 because 20 x 2 = 40. BUT the real GDP would be calculated using year 2's qty sold times year 1's price. So multiply 20 x 1 (year 2's qty sold times year 1's price) and that would give you $20 as real GDP for year 2.
Someone with expertise on this, am I correct?
just spent my last 5 weeks sleeping in and out in class and now my midterms test is in a week. this will save me from failing my macroeconomics class i know it
did you fail?
HazyLazyJazy no i didnt :D this video saved me :D
@@fiskylulany4179 taking econ right now and I'm not as confident lol
@@MRK1sauce3 years later we need an update
Shooting for that A+ on the 1st year Macro Econ midterm tomorrow, and I'm a C student.
Made possible by the one and only Khan.
Miguel Branco kind of funny since I’m doing so tomorrow, 6 years after you did.
Vince Oubre So apples don’t need to be sold in order for it to count right? They just need to “exist” per day?
i am also doing so tomorrow...
@@yessir1908 and then theres me, 7 years after him, and one year after you writing the test over a zoom call.
@@jacobrobinson2090 and then there's me 9 days later about to take my econ midterm in 2 hours and i know like nothing lmao
thanks you are really good at explaining the difference! i have a test tommorow fml
passed thanks man aha, this video saved me
Really....this has become my last and ultimate resort to clear my concepts..thank u from core of my heart.
Thank you so much Kahn! You explained it so much better than my macro book. They want us to use some stupid price index shit which is confusing, thanks again mate!
This is extremely helpful! Finally, I find a wonderful explanation that i can understand well.
Thank you so much!
the axis should be switched: quantity as x and price as y
David McKee for all diagrams I draw in economics we do price on the Y axis, quantity on the X.
@David McKee Direct relation of quantity to price
In econ we take indepent variable at y and dependent at x
This doesn't matter, as long as the diagram are adjusted so that they give the same result. It's like writing commodity X on Y axis, and commodity Y on X axis; there are no rigid rule to it. Even in mathematics, though there are certain rules, it doesn't matter the way you solve the problem as long as you obey the law of mathematics as you yield the same answer.
I love this guy when I hear his voice I know am passing at least with an -A❤ much respect
he does have a nice voice
He's sal khan, the owner of khan academy
Clear and concise. Thank you for explaining so well!
Nnnooow I'm starting to understand it better. Gonna watch the whole series so I can ace this test. Thank you as always.
Brilliant, thank you so much, made that a lot clearer :) 3 hours and a bit till my exam and been up all night :)
I had an idea but some doubts. Your explanation solidified my understanding. Thanks a bunch for taking the time to make this video. I wish those who did not like "like" on the video would explain what they see wrong with this video.
This video was wonderful for me thank you so much
Im not sure why, but that calculator made me laugh :D
Exactly, what a awesome explanation. You are legend. Thank you very much.
So why many countries GDP is much higher than GDP nominal?!
As you said GDP nominal should be higher...
I am so much in debt to you for teaching me so much! :)
Thanks for your explanation
What software are you using?
Nice explanation
@SalsaTiger83 Oh yes, thats what I was meaning (how its all black) but yep thats explained better.
cheers, mate. makes total sense. Imo the real growth is the only thing that matters. Unfortunately ppl keep forgetting that.
i love khan academy
i like it
THANK YOU SIR ! 😌
Hernandez Maria Thomas Charles Lopez Dorothy
Genuinely about to cry… This explains much more better.
But you did not show us how the calculation of nominal GDP should be done as?
The question is what is GDP. Is GDP the quantity of goods produced or the value of those goods! For example, in an infertile year with the same investment and labor, fewer apples will be produced, but then the value of each apple will be higher than last year. Thus, in both years we have produced two different quantities of apples, but each of these quantities has the same value. If GDP measures the amount of apples, it will have decreased in the second year, but if it measures the value of apples produced, it will be the same, even though fewer apples have been produced in the second year.
So if we assume in the video example that there is no inflation, that is, that banknotes express the value of goods without changing the scale of that expression, in terms of value, the second year of GDP has grown by 20%. In this case, it will turn out that the second year was less fertile, but more trees were harvested than the previous year. In other words, the production of 1 kg of apples required more labor, but at the same time more apples were produced than in the previous year.
And what happens if the increase in the PRICE of apples is due to inflation and not to a change in VALUE (price and value are not the same thing!)? See the following comment:
Suppose that the value of 1 kg of apples does not change, but changes its price in dollars. That is, last year the value of 1 kg of apples was expressed by $ 0.5, and this year, due to inflation, the same value is expressed by $ 0.55. In this case, the percentage by which the quantity of apples has increased already coincides with the percentage by which the value of the total quantity of apples produced has increased. The percentage increase in the amount of apples is 9.1% (182/2000). GDP has also grown by that much in value. But this applies only in this case, in which we assume that the value of 1 kg. apples do not change. Due to inflation, the total value of apples is now expressed not by $ 1091, but by $ 2200.
THE whole subtlety is to make a difference between a change in the quantity of a given commodity and a change in the value of that quantity. Not only is it possible to change to varying degrees, but even, for example, with an increasing quantity of a good, its value may decrease if it begins to be produced by some new method that requires much less past and living labor.
Gonzalez Carol Moore Timothy Anderson Deborah
@cheddyrod this is a really simple example. we could also say its gdp depends on foreign relations, price of oil, UN regulations etc... this is a simplified example to help you understand the basics.
Martinez Jessica Gonzalez Nancy Davis Larry
If your here looking for the definition nominal gdp is just the market value of goods and services made in the economy and is unadjusted for inflation, and real gdp is nominal gdp juss adjusted for inflation.
SIMPLE ANSWER YOUR WELCOM
Walker Angela Brown Shirley Lopez George
What if the price increase of apples were actually due to better quality or larger apples? What if we dealing with iphone 10 vs iphone 11? What about services, if we had a price increase due to improvement of services?
The reason why prices increase is usually due to better quality or quantity. GDP calculates total market values of good and services; we can measure if it increased or decreased, not why. In this case, that extra 91$ might be because of quality, not necessarily quantity. Hope I helped.
Wow thanks for explaining that, I have always wonder what's the difference between Nominal and Real GDP means
Okay let's assume that the price of apples increases for inflation but the output (quantity) remains exactly the same in the following year.
Mmmmm TI-85 Rom... Would it be accurate to measure this against the population? In my mind it would be similar to an artificial interest gain in a bank account where that interest is actually lower than inflation in currency. Say you made $50 one year on an account with $20,000, but inflation for that year was 1.7%. Effectively, you've still lost money. The point would be that even if production goes up, it could and probably does go down per capita.
Lewis Steven Jones Mary Anderson David
Perez Thomas Moore Michael Hernandez Jose
Thank you so much!! This is by far the best explanation of real GDP and nominal GDP!
Is year 1 always the year in which the country was founded?
How do you compare real GDPs from countries that were founded in different years? As more inflation would occur in 200 years than 50 years.
Walker Jessica Williams Larry Harris Sandra
Clark Jason Hall Jeffrey Allen Brian
Would you guys consider starting a video series for teaching for UPSC exam preparations in India?
Khan love you and your videos I appreciate all the help you have given me!
i wonder why we dont take gdp y2/inflation rate?
if what you care about is the change in totoal quantity(the whole point o f nominal GDP), why don't you measure and compare the quantity in gross production of both years in the first place??
I dont know if many people notice, but the fact that most of these videos are black makes them really small, the 720p version of this is only 14MB - crazy. My point is that it makes them easy to stream on low bandwidth plans.
So which gdp is our reference to see how much it increase for a certain year
@kaushiksays dude, this is what you would have to do in an economics course. It's meant to demonstrate a concept of one part of what would happen in the real world.
@NZSideways8 no, that's not because of black background. It's because the video compression tries to encode only the changes. In these screencasts of an image painting program, virtually nothing changes from frame to frame, making this extremely efficient. The codec mostly only has to update the area under the tablet pointer. The same would be true for images with solid white background or even photos in the background.
Please give me indonesian subtitle
Price should be at Y axis and Quantity at X axis.
should be 2181 lb of apples, cause technically 0.8 of an apple isn't an entire apple sold.
great video tho, keep up the good work :D
Khan Bhai Thank you so much now I am cleared with Real and Nominal GDP.
Thank you! :)~:~
why q2 would multiply p1????
My problem is my teacher gave us a chart with no product or prices just a chart with a hundred numbers on it.
They are like quarterly spending
Thank you very much...
hey khan, can you do a video or 2 on 3d graphing basics please? thanks
Aren't you assuming that the quality of apples are the same? Does that make a difference?
Thanks for Sharing. It helps alot
I understood it. That's Kahan academy
@khan academy. How can I get that calculator you're using? And what is the name of it?
You can get webbitemu.
Is there a rule for whether we use p2 or q2? I’ve seen some use p2 and others use q2 but I don’t see why
Is it depending on whether you want to measure by quantity or prices?
PLEASE MAKE MORE MACRO ECON VIDEOS I NEED TO GET A GOOD GRADE IN THIS CLASS bengali 4 lyfeeee
@MATH7660 you could use any photoshop or photoshop elements and then your tablet.
Thank you so much.very helpful
thank you so much I can understand more than my teacher explain me lol
oohh, so my country's high GDP can be attributed by the rising prices-.-
That measures inflation, and it is simple. It just asks you to see inflation as percentage. It is important. Real GDP and Nominal GDP and Index measures are 2 different things.
Please advise: What does it mean when we have a decrease in Nominal GDP and a increase in real GDP both compared the year before? Thank you.
Amazing explanation
Sal Khan is my hero
Finally understand it. Thanks
Very nice way of explaining the concepts.
Thanks sir ! For explaining in such a simple manner!
Excellent 👌👍❤
This was crazy helpful. Thank you!
What are the answers
Playlist is titled "Microeconomics and Macroeconomics"
y is this in yours microeconomics videos? this is macro
Would this level of economics be considered (senior) high school/ first semester of Uni type of work?
high school
both. In this case economics the info are bascially the same for uni and highschool. Uni cover highschool related subjects and sometimes they build on it.
Thank you. I finally get it.
thanks mr khan
awesome very good representation by graph
I LOVE U
Awesome! Thank you.
Thanks, this was useful.
Let's say: if you want to assess the growth of productivity of a certain country during a period of time - use PPP GDP figures, BUT if you want to compare current productivity of say two countries against each other - use nominal GDP figures. Any opinions?
I think that measuring the growth in productivity of a country over time should be done in real GDP, not PPP GDP. If you're only looking at one country then you'd want to take the real GDP value as it mitigates inflation (thus, showing you only how much productivity increased rather than prices). Additionally, the currency of that country makes no difference because it's the same currency that's used year after year. I think PPP GDP should be used when comparing the productivity of two countries because of currency differences. For example, comparing a GDP value in British Pound versus US Dollar is meaningless because each currency is valued differently. This is when you'd want to use PPP to compare GDP.
L
Sandeep Kaur ?
You're going to have to get manhours worked in there, somewhere, to compare productivity. Productivity is output per manhour, after all.
holy shit 720 streams faster than 360
Helpful
i finally understand for real!
thank you.
there is no other like you
You legend brother
@analyzingfunny Yep. Google "TiEmu"
Brain goes oooooooooh, thankyou!
Wow, that was helpful, thanks!