The Growth Rate Of Real Gdp Essay

1016 Words Oct 31st, 2014 5 Pages
The government and consumers want to know whether the total output of goods and services in the economy is growing or shrinking. Because GDP is collected at current or nominal prices, one cannot compare two periods without making adjustments for inflation. “To determine “real” GDP, its nominal value must be adjusted to take into account price changes to allow us to see whether the value of output has gone up because more is being produced or simply because prices have increased” (Gross). Consumption can affect the GDP in many different ways since consumption is the major component of the United Stated GDP. People consume more than they save regularly in their lives. As seen on figure 1-1 “income= savings + consumption” where consumption is always higher than the savings.
The GDP is important because collects and gives important information about the size of the economy and the economy’s health (how it performs). The growth rate of real GDP is often used as an indicator of the general health of the economy. “In broad terms, an increase in real GDP is interpreted as a sign that the economy is doing well” (Gross). When GDP is shrinking, as it did in many countries during the recent global economic crisis, employment often declines. When real GDP is growing strongly, employment is likely to be increasing as companies hire more workers for their factories and people have more money in their pockets. In some cases, GDP may be growing, but not fast enough to create a sufficient…

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