Economics Real Vs Nominal Gdp Questions
Inflation affects real GDP by distorting the value of goods and services produced in an economy. As inflation increases, the prices of goods and services also increase. This means that the nominal GDP, which is calculated using current prices, will be higher. However, to accurately measure the economic growth, economists use real GDP, which adjusts for inflation by using constant prices. Therefore, when inflation occurs, real GDP is adjusted downwards to reflect the decrease in purchasing power and to provide a more accurate measure of economic output.