Economics – Government and the macroeconomy - Economic growth | e-Consult

(a) Using nominal GDP alone is not a reliable way to measure economic growth because it does not account for changes in the price level. Nominal GDP includes the value of goods and services produced at current prices. If the price level increases (inflation), the nominal GDP can rise even if the quantity of goods and services produced has not increased. This can give a misleading impression of economic improvement. For example, if GDP increases by 5% due to inflation, it doesn't mean the economy has actually grown in terms of output.

(b) Percentage change in real GDP = ((GDP in 2019 - GDP in 2018) / GDP in 2018) * 100

Percentage change = ((2950 - 2800) / 2800) * 100

Percentage change = (150 / 2800) * 100

Percentage change = 5.36%

Therefore, the percentage change in real GDP between 2018 and 2019 is 5.36%.

(c) One other limitation of using real GDP to measure economic growth is that it does not reflect improvements in the quality of goods and services. A new model car might be more expensive than an older model, but it offers better features and durability. Real GDP doesn't fully capture this improvement. Also, it doesn't account for non-market activities like household work or volunteer work, which contribute to the economy but are not typically included in GDP calculations. Furthermore, it can be difficult to accurately measure the value of certain goods and services, particularly those that are produced informally or are not easily traded.