In Netherland: nominal GDP in the recent year was 7% and the growth rate of real...

In Netherland: nominal GDP in the recent year was 7% and the growth rate of real GDP was 5%. What is this mean in Macroeconomics? Please Explain.

Solutions

Expert Solution

Nominal GDP- Evaluate the economic production in an economy based on the current prices of the product.

Today’s Quantity* Today’s Price

Real GDP- Evaluate the economic production in an economy based on given year, which is known as base year.

Today’s Quantity *Base Year’s Price

Here Real GDP (5%) is lower than Nominal GDP (7%) that means inflation is positive.

When there is inflation is positive there will be following consequences in macroeconomic level.

1. Higher profit to the producers.

2. Good Investment.

3. Increase in production and output.

4. Increase in employment.

5. Increase in income of people and it will encourage them to spend more/ consume more.

6. Stability in price and there will be very low chances of fluctuations.

7. Overall, there will be a healthy economy and positive economic growth.

8. Even it helps to increase export and and decrease import and improve the trade balance.

Rahul Sunny answered 1 year ago

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