The table below reports nominal and real GDP for the U.S. from 1929 to 1932.
What was the growth rate of real GDP for 1931?
a. -6.93%, Real GDP is a better gauge of economic well-being than nominal GDP.
b. -6.49%, Nominal GDP is a better gauge of economic well-being than real GDP.
c. -6.93%, Nominal GDP is a better gauge of economic well-being than real GDP.
d. -6.49%, Real GDP is a better gauge of economic well-being than nominal GDP.
Gross Domestic Product:
The gross domestic product (GDP) is the value of all the goods and services produced within the territory of a country during a certain period. The GDP is normally computed at least once a year.
Answer and Explanation:
The correct answer is d. -6.49%, Real GDP is a better gauge of economic well-being than nominal GDP.
Let us determine the growth rate of real GDP for 1931. The formula is:
- Growth rate = (Real GDP in 1931 - Real GDP in 1930) / Real GDP in 1930 x 100
- Growth rate = (834 - 892) / 892 x 100 = - 6.49%
Therefore, the growth rate of the real GDP for 1931 is - 6.49.
In determining the well-being of an economy, the real GDP is a better measurement than nominal GDP. This is because the real GDP considers inflation. Therefore, it tells us the real value of the goods and services.
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from Economics 102: MacroeconomicsChapter 4 / Lesson 3