Final answer:
Gross Domestic Product (GDP) measures the value of a nation's output of goods and services in a particular time period. Nominal GDP measures the level of production in current prices, but it can be misleading because it can increase when prices rise, even if the actual level of output remains the same. To obtain the real changes in production, economists adjust GDP with price indices to calculate the real GDP.
Step-by-step explanation:
Gross Domestic Product (GDP) is a measurement used to determine the value of a nation's output of goods and services over a specific time period. Gross Domestic Product (GDP) measures the value of a nation's output of goods and services in a particular time period.
Nominal GDP measures the level of production in current prices, but it can be misleading because it can increase when prices rise, even if the actual level of output remains the same. To obtain the real changes in production, economists adjust GDP with price indices to calculate the real GDP. Nominal GDP specifically measures the level of a nation's production in current prices.
It is calculated by multiplying the quantities of goods and services produced by their respective prices and summing the total. However, nominal GDP can be misleading because it can increase due to rising prices, even if the actual level of output remains the same. To account for this, economists use price indices, such as the Consumer Price Index (CPI), to adjust GDP and obtain the real GDP, which measures the real changes in production.