Final Exam Eco 372

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Final Exam

Arnel Brown, Jr.

ECO 372

June 10, 2010

Judith Grenkowicz


What is the difference between real GDP and nominal GDP? Does GDP accurately reflect our nation’s productivity? Why or why not?

The Gross Domestic Product measures the value of economic activity within a country. Strictly defined, GDP is the sum of the market values, or prices, of all final goods and services produced in an economy during a period of time. Real GDP measures the value of output in two or more different years by valuing the goods and services adjusted for inflation. For example, if both the "nominal GDP" and price level doubled between 1995 and 2005, the "real GDP " would remain the same. For year over year GDP growth, "real GDP" is usually used as it gives a more accurate view of the economy. Real GDP is calculated using constant prices whereas nominal GDP uses current prices. The difference between the nominal GDP and real GDP is due to the inflation rate in market. In Example: Our simplistic economy only produces apples and pears. The price for an apple is $2 in 2000, whereas the price for a pear is $3. Same year we produce 100 apples and 50 pears. In 2005, because of the inflation the price for an apple goes up to $3, whereas the price for a pear is $4 at the same production levels.The nominal GDP in 2000 is $350 and the nominal GDP in 2005 is $500. However, real GDP did not change, because real GDP only changes with the changing production level and therefore is a better size measure for economy.

Explain the different viewpoints of Classical and Keynesian economists. How did the economy that existed at the time these theories were developed influence these theories? Which theory seems to be more appropriate for the economy today?

The more nuanced story is that Classical economics is fundamentally different from what became known as neoClassical economics, which in turn is fundamentally...