Hi guys, was just wondering - do you really think that nominal growth rates in gdp would equal real rates + exp inflation? To me, this would sound plausible for interest rates al least but not gdp??
i’ve noted down that GDP figures in real terms are more reliable than nominal ones. LOS 16c
(not sure that helps?)
Yes.
Nominal GDP grows for two reasons:
- You make more stuff (real growth rate)
- You sell the stuff you make for a higher price (inflation)
Properly, of course, you should compound these rates:
1 + nominal growth = (1 + real growth)(1 + inflation)
nominal growth = real growth + inflation + (real growth)(inflation)
As a first-order approximation,
nominal growth ≈ real growth + inflation
they are definitely more reliable - as it removes prices’ noise… but i just wanted to know if there are any other factors that would explain the difference btw nom and real gdp??
thanks Bill, but i am still not sure if i randomly choose a country’s real gdp & inflation figures (from World bank website) and apply the above math, ill get the nominal gdp they list…
If you don’t, I’d first question the inflation figures.
Recall from Level I that you get from nominal GDP to real GDP with the GDP deflator, which is a measure of inflation. Whether it’s the one published as _ the _ inflation measure (as opposed to, say, the CPI) is another matter.
of course, yes, how have i missed that? thank you
My pleasure.