Nominal GDP is the market value of goods and services produced in the economy regardless of resource ownership in a specified period of time usually a year using the current prices (Gans, King, Stonecash, and Mankiw, 2009). Its the Yx P, that is the output multiply by price currently in the economy. It comprises of four components ,consumption(C), investment(I), government expenditure(G), and net exports(NX)
Consumption is the expenditure by households to acquire all the goods and services they use day to day. This expenditure is on durable, non-durable goods and services (Gans et al). They are two types consumption exogenous (consumption not determined by income) and endogenous (consumption that is determined by the level of income)
Investment is the spending goods to bring future economic benefit which include three types residential fixed, business fixed, and inventory investment. Residential is the spending on houses, business fixed is the spending on plant and equipment that are used in massive production of goods and inventory investment the spending by firms to acquire stock that will increase their inventories.
Government spending is expenditure by government on goods and services that are used in all its functions like provisions of public goods and services. This spending is financed by tax revenue. The government expenditure does not include transfer payments. Real GDP is the value of goods and services produced in the economy regardless of resource ownership at prices of a certain base year. Output is matched with constant prices to give real economic activity by reducing impact of inflation. Its (output x prices of base year). Health is the condition of the body and mind that is very important to every worker in the economy to produce goods and services. Good health is important in social well-being of the people in the economy. This become important for every economy to consider the health status of its worker and become its priority to achieve this, that is people saved from diseases to give efficiency and effectiveness. Education is the knowledge in skills, academics, technical and other disciplines that citizens of the economy have to support the success of their economy. Economies with high levels of education perform very well in achieving growth and development as people with high level of education are productive. Environmental quality relates to the surroundings and their conditions. Environmental quality is vital for the social well being of the people and if the quality is poor obviously people won’t enjoy in their economy. This include the atmosphere and land. If well managed in the economy people will also enjoy their social well being. Nominal GDP value if used to determine the economic well being of people in the economy they tend to exaggerate income of the economy due to the effect of price changes. In most economies prices increase more often and will mean that income is being eroded by inflation. There maybe high GDP value from year to year but with no economic improvements experienced, that’s why real GDP tend to give reality in changes in economic well being. Real GDP do away with price changes and uses prises of a certain base year. This will show real changes in output and makes economic growth well comparable from year to year. The level of economic well being is clearly identified when using this real GDP as it is not affected by price change, but changes in nominal GDP cannot be identified what might have caused the change, price or output giving a conclusion that Real GDP is a better measure of economic well-being than nominal GDP. However neither of the two GDPs can measure social well-being of the people in economy only they can measure is physical output and price change. Real GDP and nominal GDP only take into account only economic well being not social-well being. Social well being cannot be reflected in output of the economy that is...