Country A is a developing country. The nominal GDP in Country A (expressed in terms of...

Country A is a developing country. The nominal GDP in Country A (expressed in terms of Country A currency) was 100 in 2018 and 200 in 2019. Does this means that the production in Country A doubles in 2019? Give 2 reasons and explain why or why not..

Expert Solution

First let's understand what is Nominal GDP

Nominal GDP is the sum total of monetary value of all the goods and services produced at the current year market prices within the territory of a country.

So, As per the definition we know that the Nominal GDP is calculated at current year prices and does not take inflation into account. As Nominal GDP is 100 in 2018 and changes to 200 in 2019.

So we see that Nominal GDP has doubled from 100 to 200 but this doubling can also be due to doubling of prices and no change in quantity produced. This is the first reason that production in country A has not doubled.
As country A is a developing country and we know in developing countries a large portion of population is employed in informal sector and their incomes are not properly reflected in the GDP. Also non market transactions takes place. This is the second reason that production in country A has not doubled.

Rahul Sunny answered 8 months ago

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