When computing economic growth changes in nominal gross...

When computing economic growth, changes in nominal gross domestic product (GDP) must be adjusted to reflect changes in the price level because: Group of answer choices changes in prices are primarily determined by the government. an increase in prices will increase nominal GDP without any actual economic growth. changes in prices are largely irrelevant for consumers. an increase in prices will decrease nominal GDP without any actual economic growth. prices are nearly impossible to measure by government economists.

Transcript

00:01 So first, let's recall what gdp is.

00:02 Gdp is the market value of domestic goods and services, right? the key thing for this question is the market value.

00:17 The market value of something is the price times the quantity, right? if you want to think about what's the market value of 10 ounces of gold, it's 10 ounces of gold times the price per ounce of gold, right? so something can become more expensive because you want to think about, you want to think about, are getting more of it or because you're paying a higher price for it, right? nominal gdp, right, therefore can increase from either an increase in price or a change in quantity, if we're just measuring the market value of goods and services, prices could be going up or quantity could be going up, and both of those will drive gdp up.

00:59 So here we are asked why we need to reflect changes in the price level, right? so let's go through this.

01:05 A, because government controls price.

01:12 Well, first of all, this is wrong.

01:14 They don't.

01:18 But so there's just nothing here, right? government does not control price, right? b is the correct answer.

01:28 Because change in price increases gdp despite no growth.

01:36 This is precisely the concern, right? absolutely, right? nominal gdp is prices times quantity, but what we really care about is the change in quantity.

01:47 We want to know if we're actually getting more goods and services or not.

01:52 So if nominal gdp is going up from prices and from quantities, one natural adjustment is to subtract off the change in prices, to leave you with just the change in quantities to understand how much more physical stuff people have.

02:07 Let's go through the rest.

02:09 Oh, sorry, that was b, not c.

02:12 C says prices irrelevant.

02:16 Well, that's garbage...

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