Nominal vs. Real GDP
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- เผยแพร่เมื่อ 30 มิ.ย. 2024
- "Are you better off today than you were 4 years ago? What about 40 years ago?"
These sorts of questions invite a different kind of query: what exactly do we mean, when we say “better off?” And more importantly, how do we know if we’re better off or not?
To those questions, there’s one figure that can shed at least a partial light: real GDP.
In the previous video, you learned about how to compute GDP. But what you learned to compute was a very particular kind: the nominal GDP, which isn’t adjusted for inflation, and doesn’t account for increases in the population.
A lack of these controls produces a kind of mirage.
For example, compare the US nominal GDP in 1950. It was roughly $320 billion. Pretty good, right? Now compare that with 2015’s nominal GDP: over $17 trillion.
That’s 55 times bigger than in 1950!
But wait. Prices have also increased since 1950. A loaf of bread, which used to cost a dime, now costs a couple dollars. Think back to how GDP is computed. Do you see how price increases impact GDP?
When prices go up, nominal GDP might go up, even if there hasn’t been any real growth in the production of goods and services. Not to mention, the US population has also increased since 1950.
As we said before: without proper controls in place, even if you know how to compute for nominal GDP, all you get is a mirage.
So, how do you calculate real GDP? That’s what you’ll learn today.
In this video, we’ll walk you through the factors that go into the computation of real GDP.
We’ll show you how to distinguish between nominal GDP, which can balloon via rising prices, and real GDP-a figure built on the production of either more goods and services, or more valuable kinds of them. This way, you’ll learn to distinguish between inflation-driven GDP, and improvement-driven GDP.
Oh, and we’ll also show you a handy little tool named FRED - the Federal Reserve Economic Data website.
FRED will help you study how real GDP has changed over the years. It’ll show you what it looks like during healthy times, and during recessions. FRED will help you answer the question, “If prices hadn’t changed, how much would GDP truly have increased?”
FRED will also show you how to account for population, by helping you compute a key figure: real GDP per capita. Once you learn all this, not only will you see past the nominal GDP-mirage, but you’ll also get an idea of how to answer our central question:
"Are we better off than we were all those years ago?"
Macroeconomics Course: bit.ly/39ltfFi
Next video: bit.ly/3bsTBXh
Help us caption & translate this video!
amara.org/v/H0PX/
00:00 Intro
00:36 2 Ways GDP Can Increase
01:31 Real GDP
02:05 Example - US Nominal GDP FRED
03:13 Example - Real US GDP FRED
04:14 Real GDP Per Capita (Controlling for Population Changes)
04:47 Example - Real US GDP Per Capita FRED
05:44 Recessions
06:16 Percent Annual Changes
So, how do you calculate real GDP? That’s what you’ll learn today.
Macroeconomics Course: bit.ly/33Peo4I
Next video: bit.ly/2wImXC7
Add everyone's paychecks together in a nation. Because at the same time, we must buy the stuff we produce. Basically math backward. Add profits and NOT margins.
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Hello, i am a Chinese student who study in UK. Your video with Chinese capation is really helping me to pass the economic test. Thank you!
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Which university?
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Hello, I'm a Vietnamese economics student and your videos really help me significantly in understanding macroeconomics. I love the way you explain the issues, it is very easy to follow. Thank you so much!
Great to hear!
-Roman
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After months of mugging up these concepts, I finally know the REAL meaning behind them, and that too, in just one go!! Thank You So Much sir!! Much respect from INDIA
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You taught us this topic in a less then 10 min , and our teacher spent 1 hour .. Thankyou for amazing lecture. :)
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You're welcome, Nathanael! Glad we could help. -Meg
Simply great. With prof's like you Economics not only gets easy but interesting as well. Thanks :)
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yes, you are right
I've been trying to understand what the difference is for 2 days now and it's been driving me crazy.1:10 min and I already understand everything. Thank you so much!
Yay! I finally found a good source of information that explains nominal vs. real GDP in a clear, easy to understand way. I'm still trying to wrap my head around it, but I just wanted to take a moment and say, great job!!!
Thank you! Practice helps - go here: www.mruniversity.com/practice-questions/nominal-vs-real-gdp-practice-questions
-Roman
Wow Thank you! i have my economics prelim tomorrow! and just cant get anything into my head but this helped my understanding of GDP
Good luck, Annabel! -Meg
Guys this was so helpful. This video helped me understand my university economics assignment that i was finding really hard. It was awesome and helped a lot :)
Greatly appreciate this initiative by MRU. Helped me and innumerable others in understanding this subject and passing our courses.
This is amazing, so much more innovative and creative way of teaching. Thanks MRU
Thank you so much! I could not understand the textbook just giving definition that real GDP is "adjusted for inflation". And this was driving me crazy because I could not understand what it meant. Thanks to you!
Glad we could help, Eunice! :D -Meg
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You are so welcome!
-Roman
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This video really helped depict the differences between Nominal and Real GDP which has helped my understanding of the two profoundly and including GDP per capita expanded my knowledge on these basic economic vocabulary! Thank you for this channel!
You're very welcome!
-Roman
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-Roman
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Thank you for providing this. I've had a ton of econ but like the review. More importantly, I've had it since high school and am shocked at how few high schoolers, let alone college students, are ever introduced to these basics of our economy. I see that many are in here, trolling away, spewing myths. I hope they don't vote.
Thank you sir. It is crystal clear now.
Glad we could help, Mehedi! -Meg
@Mr. P. EnisI could be wrong but may the person replied have that name 'Meg' .
What does it mean to use 2009 prizes to determine, let's say, GDP per capita in 1983?
I'm dumb
@@mkm1015 good question.
@@mkm1015 it means using the prices of 2009 to calculate the GDP for every year and then calculating.
Let's take a very simple example for a country where GDP is only measured by how much bread is consumed.
In 1950 let's say 5 breads were being consumed with each bread of being one cent. So your nominal GDP is 5X 1 cent=5 cents
Now let's say in 2010 10 breads are being consumed and each bread costs a dollar. So nominal GDP is 10 dollars for 2010.
However as u can see only 5 breads were consumed in extra and the major change is coming because of the price. Hence, a base is taken for these years. Let's take base as 2001, and let's say the price of bread in 2001 as 0.5 dollars.
Now u calculate the "Real" GDP of both 1950 and 2010 with the base as 2001:
1950: 5 bread X 0.5 dollar= 2.5
2010: 10 bread X 0.5 dollar= 5
So u see in the video example also just a common price was taken for each year to have a fair comparison.
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Great explanative video
Thank you!
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Very useful and good explanation. Thank you
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Finally an easy and clear explanation between nominal GDP and real GDP. It helps a lot also in understanding the difference between current price and constant price.
This is great !! thanks a lot
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Great to hear!
-Roman
Very nice explanation
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Good explanation!
Thank you sir. This is the first time I clearly understand the difference between real gdp, nominal gdp, and real gdp per capita. Also, where does GDP (PPP) fall in this picture? Wikipedia shows this for category for countries as well.
Nobody uses ppp that’s why it’s not mentioned
really very clear sir,, thanks a lot!!!
Hey ! Thanks for clearing up my questions and insecurities about the topic.
Where can I plot the unemployment rate and the Real GDP together. I would love to print it out to examine it a little bit more.
great explanation! thx!
You're welcome!
-Roman
Great explanation.!
Thank you so much it is so much useful...please make more videos on Indian Economy also.
Thank you for your comment! Have you seen our India playlist?
th-cam.com/play/PL-uRhZ_p-BM6qwTvoo09a3ZB2WuZNQtr8.html
-Roman
Thank you!!
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Wow I’ve been trying to find this out for months and within minutes of watching this video, I fully understand what they mean!