The Economics Of Gross Domestic Product

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Nominal GDP is measured in current prices, that is, each final good or service produced by the country is valued at the current price that it was sold (Begg, Fischer and Dornbusch 2000). Because it is a measure of production terms of current prices, nominal GDP directly reacts to increases and declines in prices or quantities of goods. Because GDP is primarily the market value of all goods produced, nominal GDP is not an effective measure of an economy’s actual level of production (Begg, Fischer and Dornbusch 2000).
Real GDP, on the other hand, recognizes that the price level of goods and services produced by an economy changes over time which causes the movement in the value of GDP. It should be noted that an improvement in nominal GDP can be bloated by the mere increase in price level due to inflation. Thus, real GDP eliminates this possibility and renders a more accurate measurement by expressing the value of total production in terms of constant prices. In the computation of real GDP, the price level in a chosen base year is kept constant and functions as a deflator of the nominal GDP (Sloman 2003). Because changes in real GDP are solely brought about by a more efficient and higher level of output, they are often referred to as economic growth rates.
To what extent can a measure of GDP really measure the well-being of a country Assess the problems and suggest alternative measures or indicators.
Currently, GDP is the most popular measure of economic performance and well being of a country. It should be noted that the rise in GDP is almost often directly equated with economic growth. In a practical sense, the use of real GDP in assessing the health of an economy is somehow satisfactory as it indicates how materially well-off the population is.