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Nominal vs. Real GDP

3117 ratings | 328091 views
"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 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: http://bit.ly/1R1PL5x Ask a question about the video: http://bit.ly/24pzD7X Next video: http://bit.ly/1TGgR8r Help us caption & translate this video! http://amara.org/v/H0PX/
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Text Comments (157)
Sabir Ali (4 hours ago)
Very useful video... difficult concepts explained very nicely and easily... big thumps up for this video
Sajia Ahmed (2 days ago)
Amazing explanation. Thnx
Aryan Singh (13 days ago)
thank you so much
Christian Huber (15 days ago)
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: https://www.mruniversity.com/practice-questions/nominal-vs-real-gdp-practice-questions -Roman
김환국 (18 days ago)
I hate islam
김환국 (18 days ago)
+Marginal Revolution University we need Toyota
MTRV7 Momin (1 month ago)
well explained, but should be more detailed, as GDP is not simple as explained.
Audacity Will (1 month ago)
OOOMG😭😭😭 HELP.... you're speaking another language right now
Aarav Sikchi (1 month ago)
This is awesome!!
Bharathan A (1 month ago)
Beautifully explained !
chupacabra20 (2 months ago)
What about goods and services that weren't available 10 years ago?How do you measure such things?
Yaz T (2 months ago)
The way its measured is by spendings, factor the debt as "fake spending" in those calculations and you'd get the result that it's a big lie and huge bubble of growth.
Fabio Piccioni (3 months ago)
Many grazie for your vids from Italy.
Julia Lerner (3 months ago)
If the real standard of living has improved so much, how come both parents must work full time now to maintain their family when it used to only require one parent working and one staying home teaching and raising the kids? And why is homeless and poverty more prevalent now?
Shane Whitefeather (3 months ago)
Here's a quick lesson on GDP ... It totally Rocks under President Trump, and sucked balls under Obama
Sourav Panigrahi (3 months ago)
really very clear sir,, thanks a lot!!!
DefinitelyNotDan (4 months ago)
I'm curious about something. How is it that what you are saying does not coincide with real data from the past and BLS data from peer reviewed papers directly contradicts FRED data.
zpetar (5 months ago)
4:57 Is it really 4x times increase in standard of living? In 50s households could easily live with only one family member working. How many households can do it now? How about household debt in 50s. in 50s household debt was 40% of GDP, now it's more than 100%. To put it simple, all debts combined owed by households in US are larger than GDP. How about personal savings? How many Americans can cover unexpected expense? How many Americans have 500$ put aside for car repair?
Kai Bing Lay (5 months ago)
uhmmm * raises hand up high * no sir... no... no p.s. legit never knew that the difference existed, thx for the dope vid Prof.Alex
Sumeet S (5 months ago)
Very informative. Thanks for the upload 👍
Evolved Ape (6 months ago)
But mah Bernie Shanders!
Rich Dobbs (6 months ago)
"Real" GDP == somewhat less distorted GDP. Try living today without welfare on the average "real" income from 1950. You will find something that you must have that costs so much that it sucks up all of your available cash. Its like those statistics that show people living on $2 a day.
aizaz torwali (6 months ago)
Thank you sir. its helpfull
Frone NK (7 months ago)
was this a fred sponcership
Madalina P (7 months ago)
thank you so much!
Big Daddy Boom Boom (7 months ago)
Is real GDP the equivalent of Purchasing Power Parity?
The Queen (7 months ago)
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! <3
pec1739 (7 months ago)
210k views but 1.7k likes, come on man, these ppl should show some appreciation by a click of "like"
Sheikh Beryal (7 months ago)
You taught us this topic in a less then 10 min , and our teacher spent 1 hour .. Thankyou for amazing lecture. :)
T L (9 months ago)
Good walkthrough. Thanks!
aNegro WithKnowledge (9 months ago)
This stuff is confusing
Stock Market Analyst (2 months ago)
Real GDP is increasing of goods while nominal GDP is the increasing of prices of the same good.
Santiago Mancera (9 months ago)
I’m here cause I don’t understand shit from my teacher
MF_Kamo (6 days ago)
my teacher made me watch this 3 times FIRE HIM
Holy Electrum (1 month ago)
Some professors should be fired
metal garurumon (2 months ago)
Your teacher is dumbing u down
Dark4rr0w (2 months ago)
Yes! Same.
Rayne Mahfood (9 months ago)
i <3 u
PEACELOVER (9 months ago)
So this is they called PPP?
Econ4 Every1 (9 months ago)
This video is very interesting, but I would be interested to see one more breakdown. The video shows GDP, Real GDP, then Real GDP Per Capita. I think it would be interesting to see Real GDP per Capita Per economic quintile (wage earners broken up into 6 groups, the bottom 0-20th percentile, the 21-40 percentile, 41-60 percentile, 61-80percentile and the top 20th percentile. Then you could even do the top 1percentile just as a comparison. My hypothesis is that while real GDP per capita has increased from $14,000 to $50,000 per person, that those in the lower quintiles 0-20th percentile and 21-40th percentile were better off in 1950-1970 then they have been in the last 30 years or at the very least, the bottom 40% have seen much, much smaller gains than the top 20% while at the same time seen other negative economic burdens. The question then becomes, did the top 20% really become that much more productive compared to the bottom 40%, or has the top 20th percentile just captured more of the money from the economy as a result of economic policy? Regardless of your answer to the last question, the next question is, not just the improvement in the standard of living over time, but how many people as a percentage of the economy lived at a certain minimum standard of living. In other words, how many people as a percentage of the population were economically independent over time (to some degree) and has that number decreased? Again, my hypothesis is that between 1950 and today fewer people are economically independent and more people have reached fantastic levels of wealth. The last question and one I'll let you, the reader, answer for yourself is, which makes for a better economy and what has changed?
bighands69 (8 months ago)
The elites of society have become a lot wealthier and It was not by design. They got wealthier because productivity as a whole increased especially in fields like manufacturing. One plant today could produce many times greater than a plant of 1965. I am not saying the robots have taken all the jobs because that is nonsense. It has meant every worker could produce more. Everybody should have been getting wealthier as productivity increased but this did not happen. For the working class the biggest single change over that time was contributions towards welfare. This has put more and more pressure on people's wealthy. Even a doctor in 1965 would have been on about 20% taxes but today is probably nearer to 40%.
Econ4 Every1 (8 months ago)
Joe, thank you for the thoughtful reply. Let people keep their money.... _"...reform social security away from today's' set-up of the workers of today paying for the elders of tomorrow, to a savings plan that actually allows the average worker to benefit from the increased percentage of wealth generated by the market."_ Intuitively that sounds like a great idea, let people keep more of their own money and instead of earning a relative pittance in interest from the US government, let them invest it in the stock market. Again, that sounds like a great idea. The slow and steady method of guaranteed returns from the US government or let people take control of their own future and let (force?) them to invest in productive capital markets like the Stock Market where they can ostensibly earn greater returns and share in the wealth. However, we know the devil is always in the details.... So let's think about this. The idea, as I understand it (please correct me if you think I'm wrong), is that 1) Social Security taxes and benefits are reduced, and instead, 2) The amount of the tax reduction is used to buy specified shares of stock. And 3) Because the government is going to collect that much less in taxes the budget deficit will be that much higher, and so the government will have to sell that many more Treasury securities to ‘pay for it all’ (as they say). Thus. 1) They take less each week from your pay check for social security and 2) You get to use the funds they no longer take from you to buy stocks. 3) You later will collect a bit less in Social Security payments when you retire, but 4) You will own stocks that will hopefully become worth more than the Social Security payments you gave up. Those who favor this plan say yes, it’s a relatively large one time addition to the deficit, but the savings in Social Security payments down the road for the government pretty much makes up for that, and the payments going into the stock market will help the economy grow and prosper. Those against the proposal say the stock market is too risky for this type of thing, and point to the large drop in 2008 as an example. And if people lose in the stock market the government will be compelled to increase Social Security retirement payments to keep retirees out of poverty. Therefore, unless we want to risk a high percentage of our seniors falling below the poverty line, government is taking all the risk. Both are, IMO are wrong. I consider myself an amateur macroeconomist as I have no formal training, but I've spent about 13 years trying to understand our economy. With that, I'll point to a fact you may not have considered. Privatizing Social Security _cannot_ have a positive net growth effect on the overall economy (all other things being equal). If people at the bottom half of the economy do better as a matter of accounting, people in the top half of the economy must do worse. This is a zero-sum situation that now requires me to explain. Instead, I will quote a conversation between Warren Mosler and Steve Moore then head of economics at the CATO Institute (at the time this Q&A session took place) to explain: *Warren:* “Steve, giving the government money now in the form of Social Security taxes, and getting it back later is functionally the same as buying a government bond, where you give the government money now and it gives it back to you later. The only difference is the return seniors will get.” *Steve:* “OK, but with government bonds, you get a higher return than with Social Security which only pays your money back at 2% interest. Social Security is a bad investment for individuals.” *Warren:* “OK, I’ll get to the investment aspect later, but let me continue. Under your privatization proposal, the government would reduce Social Security payments and the employees would put that money into the stock market.” *Steve:* “Yes, about $100 per month, and only into approved, high-quality stocks.” *Warren:* “OK, and the US Treasury would have to issue and sell additional securities to cover the reduced revenues.” *Steve:* “Yes, and it would also be reducing Social Security payments down the road.” *Warren:* “Right. So to continue with my point, the employees buying the stock buy them from someone else, so all the stocks do is change hands. No new money goes into the economy.” *Steve:* “Right” *Warren:* “And the people who sold the stock then have the money from the sale which is the money that buys the government bonds.” *Steve:* “Yes, you can think of it that way.” *Warren:* “So what’s happened is the employees stopped buying into Social Security, which we agree was functionally the same as buying a government bond, and instead bought stocks. And other people sold their stocks and bought the newly issued government bonds. So looking at it from the macro level, all that happened is some stocks changed hands, and some bonds changed hands. Total stocks outstanding and total bonds outstanding, if you count Social Security as a bond, remained about the same. And so this should have no influence on the economy, or total savings, or anything else apart from generating transactions costs?” *Steve:* “Yes, I suppose you can look at it that way, but I look at it as privatizing, and I believe people can invest their money better than government can.” *Warren:* “Ok, but you agree the amount of stocks held by the public hasn’t changed, so with this proposal nothing changes for the economy as a whole.” *Steve:* “But it does change things for Social Security participants.” *Warren:* “Yes, with exactly the opposite change for others. And none of this has even been discussed by Congress or any mainstream economist? It seems you have an ideological bias towards privatization rhetoric, rather than the substance of the proposal.” *Steve:* “I like it because I believe in privatization. I believe that you can invest your money better than government can.” Warren gives Steve the last word here. Basically, for the bottom half to do better than money will come from the top half (all other things being equal). It will not create economic growth (again, freezing all other variables). Also, in my experience, the top half is pretty savvy and doesn't take kindly to losing money. If, by chance, it did work out that the bottom 1/2 was earning more wealth in a privatized system, would other sources of income stay the same? What about expenses, would they increase? We have to consider the big picture. The very wealthy are getting wealthier because of the slow shift to a rentier society. The GFC slid a lot of wealth into the top 20%. Now I want to be clear, I'm not advocating "class war" rather I advocate policies that I believe are best for society as a whole. If the very very wealthy are a little less wealthy and the lower and middle classes have a little more, assuming that's accomplished in a way that consistent with democratic/ capitalist principles, I think as a nation we're better off. In conclusion, the proposal to privatize Social Security in no way changes the number of shares of stock, or which stocks the American public would hold for investment. So at the macro level, it is not the case of allowing the nation to ‘invest better than the government can".
Joe Raneri (8 months ago)
Interesting hyposthesis, without really going into the data, I would say that some of what you say is true. The standard of living probably has gone up for the top end of the population more than it has for the bottom. Now, in terms of why, well, one thing to consider is how much wealth today is generated by the stock market as compared to other times in history. And one way to help fix that, in a conservative way, would be to reform social security away from todays' set-up of the workers of today paying for the elders of tomorrow, to a savings plan that actually allows the average worker to benefit from the increased percentage of wealth generated by the market. The two ways the average person builds wealth with through property and investment. Unfortunately, there is a finite marketplace for property, one that would need some kind of stimulation that would reduce the concentration of populations in cities and spread them out into the more sparsely populated areas where property values are still affordable (maybe the increased push towards telecommuting can help with this). However, tying SS to the market would allow people to accumulate wealth over time as they work, most importantly, wealth that can be handed down to the next generation. Right now, if you die at 61, you lose all of that SS investment you put in, and your children don't even get to enjoy it. Make the switch, and you'll see more people benefiting from the market, benefits they can pass down.
Tasnim Rahman Alvi (10 months ago)
Thank You Sir
Kun Lin (10 months ago)
But how is the production cost change accounted for in this calculation? For a loaf of bread, perhaps the cost to produce doesn't change much, probably within one order of magnitude, but other things, such as computers and digital services, have been arguably made much cheaper to make, and certain things didn't exist back then. How do we put a price tag for new inventions and advances in technology that make things cheaper to make to begin with?
Matthew Hemmings (6 months ago)
Kun Lin it is technically all included in the price of the bread. Also, the difference between then and now is not highlighted because if there was zero production or 1000 production the contribution in ‘’real’’ GDP is not affected by external factors.
Sukant Saxena (10 months ago)
Best Video On Economics I've Ever Watched , I Wish There Be Some Good Teachers Like You In Other Fields Too! :)
Rajshi Vallabhi (10 months ago)
Thank you!!
Victor Romano (10 months ago)
A very good lesson..cleared out so many perplexing doubts
Daniel Robert Prieto (10 months ago)
Have certain prices increased even when adjusting for inflation? Healthcare would be a good example
bishop panta (11 months ago)
what does GDP at basic price means
La Luna (1 year ago)
Hey ! Thanks for clearing up my questions and insecurities about the topic.  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.
zsdg15 (1 year ago)
How can in 1960 the real GDP per capita be close to $20,000 and now it’s close to $60,000 yet in 1960 the average person could buy a house a car send their kids to college and have a comfortable standard of living with one income earner when today the average person is struggling even with two income earners!?
Leo Howe (29 days ago)
Race doesn't really have much to do with it... That's more of a statistical victim excuse. The issue is more about location. It is true that people of differing ethnic heritages seem to gravitate toward locations where opportunity may be limited, but those who choose to go elsewhere have found great opportunities with great pay. There are a lot of immigrants around the nation who are well off, and while they might have learned a little about hard work from big city living, they've been able to apply themselves in more worthwhile capacities elsewhere.
maximilian2000 (1 month ago)
zsdg15 I forgot to mention that there has been a significant amount of immigration to the United States. Most of these immigrants end up being lower class and lower middle class and having offspring who will also be the same. If the United States were still 90% white and 10% black, like it was in the 1950s and 1960s, then, today, "the average person could buy a house a car send their kids to college and have a comfortable standard of living." The United Stated today is only 62% white.
Jack Mueth (1 month ago)
Wealth has gone up, wealth inequality has also gone up. Minimum wage in the 70s was roughly $10 in today's money.
mazzb305 (3 months ago)
Prices and cost of living have risen, but wages have been stagnant.
maximilian2000 (3 months ago)
zsdg15 What you wrote is untrue. I don't know where you found that information. There were a lot less people living in the suburbs in 1960. If you're grandparents or great grandparents were middle class and lived only among other people in the middle class, then that should explain why you think in 1960 the average person could buy a house a car send their kids to college and have a comfortable standard of living.
Ram Zee (1 year ago)
very helpful your video sir..
Elijah Cheung (1 year ago)
This is amazing, so much more innovative and creative way of teaching. Thanks MRU
Anand Patil (1 year ago)
sir can you please give me the present year 2017 GDP status of INDIA
Fidan Er (11 months ago)
Danita I totally agree with you!
Justin Sandolph (1 year ago)
I still don't get it
Zane A (1 year ago)
Sir, you've earned another subscriber.
abdukadir abdurahman (1 year ago)
Very helpful! Thanks,
ce nation (1 year ago)
thankyu for the information
Safa'a Bukhamsin (1 year ago)
best video I have ever seen for macroeconomy
Ako Tofiq (1 year ago)
Thanks for the videos. they are really amazing and help students a lot.
Great to hear! -Roman
bg b (1 year ago)
thanks for the video, but I got a question, is real GDP=PPP??
bg b (1 year ago)
thanks a lot
No they are different. Real GDP is correcting for price changes over time, so that you can compare, for example, a country's GDP in 2017 with 1990. PPP is correcting for differences between countries so that you can compare, for example, Korea to India. Much more detail is provided here: https://www.youtube.com/watch?v=WpJbVitlInM -Roman
Jene' Spears (1 year ago)
great video thanks!!!
KceenHD (1 year ago)
Is real GDP same as GDP PPP?
PEACELOVER (9 months ago)
Marginal Revolution University so whats accurate , Nominal or PPP? What is the real measure of wealth of a country?
Hello, No they are different. Real GDP is correcting for price changes over time, so that you can compare, for example, a country's GDP in 2017 with 1990. PPP is correcting for differences between countries so that you can compare, for example, Korea to India. Much more detail is provided here: https://www.youtube.com/watch?v=WpJbVitlInM Hope that helps. -Roman
Manoj .s (1 year ago)
clearly explained 👌
Desmond Yuan (1 year ago)
Hello, i am a Chinese student who study in UK. Your video with Chinese capation is really helping me to pass the economic test. Thank you!
Shane Whitefeather (3 months ago)
Hey Desmond ... you're not coming to the U.S. and stealing our tech property?  Just kidding, LOL
BABATUNDE (6 months ago)
Which university?
Joy Channing (1 year ago)
Desmond Yuan same! Chinese studying in UK!
Sumeet Pande (1 year ago)
this video cleared my confusion between GDP and GDP PPP in simple language
Abcd efgh (4 months ago)
He didn't even discuss PPP in this video , I think you were hallucinating .
Mat 183 (1 year ago)
sounds like Ross from friends haha
Double Six (1 year ago)
got lost in the comments
Kelsey Clark (1 year ago)
Guys this was so helpful. This video helped me understand my university economics assignment that i was finding really hard. It was awesome and helped a lot :)
D (1 year ago)
a 17$ potato?!
Simran Sinha (1 year ago)
This channel is highly underappreciated. You guys deserve a lot more views and likes.
Eunice Chung (1 year ago)
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
duhawma (1 year ago)
The best one ever!
Andrean Lobo (1 year ago)
Simply great. With prof's like you Economics not only gets easy but interesting as well. Thanks :)
chan liu (1 year ago)
Hope I can pass my economic exam~Thank you for your videos~
Good luck! -Meg
pow (1 year ago)
Very well explained. Thanks 🙏🏻.
Annabel Shand (1 year ago)
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
M DQ (1 year ago)
This and the Solow explanation made everything clear! Heros!
Fatima Al (1 year ago)
This is great !! thanks a lot
Idrees IGGA (1 year ago)
could you do a video which includes more countries as an example of income distribution rate
Ella Blun (1 year ago)
what does "using 2009 prices" mean? You just apply whatever the price in 2009 is, to an analogous product from way back when? What about things that don't exist anymore and there aren't replacement products? Like for example, bees are going extinct, so in 2009 there was a price for honey going into then GDP, but in 2020 all bees are gone, and there's no more honey, ever again. Or things that were invented in mean time, like drones for example, there's literally nothing that compares to drones just few years back... Or does "using 2009 prices" mean something else?
Abhilash Khajuria (1 year ago)
just love it the way you explained so easily
Nathanael Morgan (1 year ago)
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
Thank you sir. It is crystal clear now.
Glad we could help, Mehedi! -Meg
ayaz khan (2 years ago)
superb
Utoobia (2 years ago)
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.
Samir thapa (2 years ago)
is remittance gdp??
Hi Samir, It depends on the method used to measure GDP. We have a video on this: https://www.youtube.com/watch?v=ChnRwedmO64&list=PL-uRhZ_p-BM52EbMG1NR1ZfG9tEvcxE4u&index=4 Hope that helps! -Meg
i cant believe people find economics interesting
symphoniez (25 days ago)
Exactly.
Holy Electrum (1 month ago)
It is it just doesn’t make sense to me lmao
It's low level math.
Bellaztry Ramona (6 months ago)
GDP PPP better accurate than GDP Nominal
Niko Heikkilä (9 months ago)
Amen to that.
Victoria Carpenter (2 years ago)
This made everything make so much more sense. Thank you!!
misam330 (2 years ago)
yes, you are right
Rob F. (2 years ago)
On the practice questions, it says it is "false" that nominal GDP is always larger than real GDP... how can this be? Seems to me that not adjusting for the current year's prices will always make nominal GDP significantly higher?
Ion Sterpan (1 year ago)
Nominal GDP is lower than real GDP due to deflation. If the monetary base doubles from one year to another, we need to discount that, and find the real GDP by dividing the nominal GDP by 2. If the monetary base decreases two times, then we find the real GDP by multiplying the nominal GDP by 2.
Robert Bereza (1 year ago)
I guess that if the prices of good dropped compared to earlier years, the nominal GDP could increase while the Real GDP could decreas. This implies that real GDP could be lower than nominal GDP (I think), depending on what value you put on goods when calculating real GDP. Sorry for being terribly late to the party :)
Ferdinand Melchor (2 years ago)
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.
Gianne N (2 years ago)
I have a report on this this friday fml
Miguel Barkley (2 years ago)
This is perfect! Thank you so much!
Ajaypal Singh (2 years ago)
Really, needs of the time.
Roket Android (2 years ago)
Let's say: if you want to assess the growth of productivity of a certain country during a period of time - use PPP GDP figures, BUT if you want to compare current productivity of say two countries against each other - use nominal GDP figures. Any opinions?
Zimu Zeng (1 year ago)
When assessing economic growth over time, your would use real GDP, not PPP. But if you want to compare current productivity of two countries, then yes, you would use PPP to account for the difference prices within the two countries.
Major Marketing (2 years ago)
So is inflation 4,600% more than in 1950? (55-8)
Francisco Hanache (2 years ago)
So how can you find real gdp from nominal? By using using FRED?
+francisco hanache Check out the "Related" section under the video on our website. We have several resources on calculating real GDP from nominal. -Meg Link: http://www.mruniversity.com/courses/principles-economics-macroeconomics/real-versus-nominal-gdp
Have you examined the fact that capita is only decided by people living in a residence, during the census? and that an unknowable amount of people are undocumented in that, due to the fact that you cannot find every person who does not live at an established residence with an address?
Jepte Vergara (2 years ago)
Why the 2009 dollar and not 2015 dollar to measure real GDP? Thank you so much for the video.
Zimu Zeng (1 year ago)
Yeah, we're looking at what the 1950 GPD would be if prices had been at 2009 levels.
Abilash Appat (2 years ago)
this may be a silly question.. from the graph when comparing with Real GDP from 1950-2015.... The 1950's GDP's about 2.2 Trillion dollars..Why ?Are we substituting 2009 prices in 1950's goods & services ??
Jepte Vergara (2 years ago)
+Matthew Johnson Thank you so much.
Matthew Johnson (2 years ago)
+Jepte Vergara 2009 is the base year used for no other reason than it is the one he picked. He could have used any year he wanted. So, if you are asked to compare two years, you can follow the standard Real vs. Nominal formula (Price base year times quantity year evaluated or P2009 x Q2016) to find the growth.
Arsenal125Foward (2 years ago)
So could a real high GDP ever indicate inflation? Because GDP measures the price of all final goods and services and inflation results in higher prices of goods and services when the value of the dollar is lower. Is this right?
+Arsenal125Foward "Real GDP" is adjusted for inflation and "nominal GDP" is not. - Meg
Tyler Hardwick (2 years ago)
The standard of living is much lower than 1968 wages haven't inflated properly, the chart you showed shows that it will cost an American $50,000 to have the same standard of living as $12,000 would have 40 years ago. That doesn't suggest that the standard of living is higher. That number of corse is considered to be a middle class living, in 1968 32 million of the 50 million households would have ranged from just below to above that standard (This is with few 2 job families, and minimal over time when compared to today, a figure I would assume you have as well) In today's America while the percentage at or above the line is about the same from a household perspective, most of those are two job/60 hour a week households. We work hard for lower wages. GDP is a useful tool, but only when directly compared to wages earned and hours worked. The fact that you didn't do so, and suggested that this shows the standard of living to be higher is a gross misinterpretation of information.
Zimu Zeng (1 year ago)
The video says that US real GDP per capita has risen by a factor of 4. This means that even after having accounted for changes in the cost of living, the average American is still 4 times better off than before. It is true that a lot of households now have two people working instead of one, so you could say that the average number of hours worked per person has doubled. But even then, there is a doubling in the real GDP per hour worked, so people are still better off than before even if you take into account working hours. And what you said about healthcare costing 10% and 28%, etc. So in 1950, people can use 90% of their income buying things other than healthcare. Nowadays, people can only spend 72% of their income on healthcare. But remember, that's 72% of an income thats four times as large. So people nowadays still have much more income to spend on goods and services even after taking in account healthcare costs.
Tyler Hardwick (1 year ago)
Ion Sterpan What the "per household" metric fails to account for however is how many hours a household works to acquire that standard. While it may be anecdotal, as a midwesterner growing up absolutely no families that i encountered were two job families. Now in the same cities seemingly every household is a two job household. "Household" isn't nearly as accurate as individual stats but even they fail to account for hours worked. It is my understanding that the per household numbers are consistent with cost, however individual incomes are lower when you adjust for the cost of living. Factor in costs associated with a multi job family such as childcare, Not to mention things such as healthcare, (healthcare used to cost the average American family 10% of their base earnings, now that figure is 28%) Factoring in all variables and you end up with a lower standard of living even though household income is the same. People will do what they must to make enough money. Household earnings is a deceiving metric.
Ion Sterpan (1 year ago)
The chart shown in this lesson shows that the average American today can buy the value enjoyed by the average American in 1968 (namely 22k in 1968 dollars) with the same amount, 22k in the 1968 dollars, and still have the extra up to 50k. So we cannot say that the average American would pay more to enjoy the same value enjoyed by the 1968 American. You are right that looking at the measure "the average American" does not capture distributional issues. To do so we can search for stats about real median personal income. Introducing a household measure would complicate the discussion unnecessarily, so we can safely search FRED for per person stats. We learn that growth for the median American is smaller, which favors your point, but we do see growth nonetheless, from 22k to 30k. Finally, you correctly observe that the GDP growth chart does not talk about the changes in the ratio of leisure to number of working hours. But this is just a limitation of the concept of GDP, it is not the authors' overlooking or a misinterpretation by authors. However, of we take interest in the number of working hours (see the FRED chart "Average Annual Hours Worked by Persons Engaged for United States") we see that the number has actually decreased since 1968, which should suggest more leasure and so, a higher standard of living.
Ze Khong (2 years ago)
Great explanation.!
THE BOOKWORM (2 years ago)
Lol
Aastha Kalia (2 years ago)
great thanksss!
Talha Javed (2 years ago)
great explanation
Ricardo Mazeto (2 years ago)
Excellent explanation! Thanks!
Jason McPhee (2 years ago)
MRU is AWESOME! Hopefully their efforts reach many.
+Jason McPhee Thank you!

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