Comparing GDP

After understanding the meaning of GDP, one can try to directly compare diferent GDP measures, across time and space.

To do that, we use one of two measures:

Nominal GDP

Nominal GDP is not ajusted for inflation, meaning that, by mere passage of time Nominal GDP is bound to increase, because inflation tends to be about 2% per year.

Real GDP

Real GDP is adjusted for inflation, which allows us to compare figures from different time periods.

Which is better?

Well, it depends on who you ask.

For most politicians, Nominal GDP is better because it tends to increase, giving hope to their population, and it is simpler to explain.

For most economists and investors, you really should be using Real GDP, in order to get more accurate information about the real world, even if it means that things are not as good as it seemed.

The take-away is: Remeber to ask if the numbers you're being told are for Nominal or Real GDP!

Thanks for reading!
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Also check out the previous post!