Fundamentals of Macroeconomics: Gross Domestic Product

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Part 1 In this section, I seek to offer a concise definition of a number of key economic terms. Gross Domestic Product (GDP) In basic terms, GDP is an estimate of a nation's total economic output. In that regard, GDP can be used as a fairly accurate measure of a country's economic health and living standards. Typically, the GDP of a nation is computed on an annual basis. In my definition of GDP above, I label it an "estimate" of a nation's total output as the same fails to capture a country's underground economy. Real GDP and Nominal GDP Real GDP is essentially a measure of a nation's total economic output in which case adjustments are made to reflect changes in the price levels of goods and services. In that regard, real GDP (unlike nominal GDP) is the nation's total economic output expressed as per the prices of a specified year commonly referred to as the base year. To get a clearer picture of what real GDP actually is, we need to differentiate it from nominal GDP. In the words of Baumol and Blinder (2011), "nominal GDP is calculated by valuing all outputs at current prices." It does not therefore take into consideration price changes. A certain year's real GDP should therefore be lower than the same year's nominal GDP. This is largely the case given that the latter measure is not adjusted for inflation. Unemployment Rate This can generally be defined as the ratio of those who are unemployed to the total civilian labor force. The resulting figure should in this
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