help on a basic econ question.

Question

Suppose U.S nominal GDP increases from one year to the next year. Can you conclude that these figures present a misleading measure of economic growth? What alternative method would provide a more accurate measure of rate of growth?

Answer 1

The nominal GDP would increase when either of the following happen:

1) You produce more stuff

2) Prices increase

The first of those two represents "real" growth, whereas the second is just an illusion of growth. So, if the Nominal GDP increases, it might just be that prices went up with no real growth (although it's possible that you did also produce some more stuff).

The better measure is "Real GDP", which only increases when you "produce more stuff" and won't increase based on price changes.