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Principles of Economics Gross Domestic Product - Essay Example

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Principles of Economics Gross Domestic Product

During the base year nominal and real GDP are equal. Therefore real GDP reflects both prices and quantities of goods and services produced by an economy, whereas nominal GDP reflects the produced quantities only.
GDP does not reflect accurately the nation's productivity. There are products that GDP excludes, because it is difficult to measure them. For one thing, GDP includes all items produced and sold legally in the market. This means that products that are produced and sold illegally cannot be traced and measured by the GDP. Additionally, GDP does not include products and services that are actually produced by households but never enter the market. These are, for example, home grown fruit or vegetables that are used within the households that cultivate them. Also, GDP excludes other immeasurable variables like the quality of the environment or leisure time and does not reflect the distribution of income within an economy. ...Show more

Summary

Because GDP measures the total spending on goods and services in terms of money over a particular period, it is important to note that prices are not constant over time. To reflect this dynamics and in order to make realistic comparisons between GDP figures over the years, economists have introduced two measures for GDP…
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Principles of Economics Gross Domestic Product essay example
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