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Economics
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What is the difference between real Gross Domestic Product (GDP) and nominal GDP? What is the relationship between the real GDP and the business cycle? Give one Example

Aug 19th, 2015

Hi there! Thank you for the opportunity to help you with your question!

Hi there! Thank you for the opportunity to help you with your question!

The difference between real and nominal Gross Domestic Product is that real GDP is adjusted for inflation, whereas nominal GDP is not. Nominal GDP values make calculations using the dollar value at the time of measurement, but the real GDP value is adjusted such that the historical change of dollar value is taken into account.

There is a relation between business cycle and real GDP, in that the real GDP increases in periods of expansion and decreases in times of recession. The peak of the business cycle can be characterized by a change from increasing to decreasing real GDP. 

An example of this relationship can be seen during the Industrial Revolution, where an increase in productivity led to a higher real GDP associated with an expansion in the business cycle. Conversely, during the Great Recession (2007-2009) the real GDP contracted by about 5%, a contraction in the business cycle.

Please let me know if you need any clarification. Always glad to help!Please let me know if you need any clarification. Always glad to help!
Aug 19th, 2015

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