Nominal vs. Real GDP
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- Опубліковано 16 чер 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'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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I was so confused about this concept that you explained in 7 minutes. Thank you. Great video, great explanation
I have to say thank you, sir. You have helped me a lot with my school project
You're welcome, Nathanael! Glad we could help. -Meg
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
It's exceptional, Sir. You help me to understand things that I've confused for years. Thanks a lot.
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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
This is amazing, so much more innovative and creative way of teaching. Thanks MRU
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!
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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
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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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.
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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.
Very useful and good explanation. Thank you
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Great to hear!
-Roman
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you sir could darken the subtitle to make it more readable. Because it is hard to read with that kind of contrast in the background, but over all, thank you for the info this is very useful.
Clear explanation with an example , although books are just giving us only definition and you are the best of explaining it.
Excellent explanation! Thanks!
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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 explanative video
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Thank you!
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Thank you for making such clear videos to understand these concepts. Curious though, if American GDP per capita is 4x better now then in 1950s is there any measurment for concentration of wealth to explain the incom balance difference from then to now?
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I am student from India. I am learning Economics to pass my examination. Thank you for clearing my concept.
That was real simple and helpful sir.
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
Sir, you've earned another subscriber.
Hope I can pass my economic exam~Thank you for your videos~
Good luck! -Meg
Lol I have mine in 9 hours 😀
Wow I’ve been trying to find this out for months and within minutes of watching this video, I fully understand what they mean!
Great explanation.!
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could you do a video which includes more countries as an example of income distribution rate
thank you so much!
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?
ua-cam.com/play/PL-uRhZ_p-BM6qwTvoo09a3ZB2WuZNQtr8.html
-Roman
Amazing explanation. Thnx
Very helpful! Thanks,