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Real GDP change for existing goods is usually measured by amount.

But the basket of goods and services produced by an economy changes over time. And it is not necessarily meaningful to compare screws with ball bearings, or integrated circuits with railroad cars. So as a macroeconomic figure, real GDP does not necessarily make sense, even when defined in terms of real goods and services.

This doesn't mean that you can't reasonably parametrise real GDP growth with analytical functions to make an economic theory.

Who promised you that it's an analytical function? For that matter, who promised you that it's a function at all of the variables it's usually expressed in terms of?

(You can always make it a function by parametrising it in time, but as Keynes notes in the paragraphs above, that's not terribly interesting in terms of predictive power...)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Feb 27th, 2009 at 03:00:16 AM EST
[ Parent ]
real GDP does not necessarily make sense

Yes, but real GDP growth makes a sense, as the portion of fundamentally different products is rather small. Such new products are than at some point pegged in their relation to other products by their nominal value. Comparing the absolute value of GDP of two countries is indeed not that much helpful.

Of course there is some arbitraryness in real GDP, as one has to define the hedonistic factor. Is a computer with double the CPU power and disk space double as good as the other computer?
But I do think that often such questions can be answered in a reasonable way.

Of course without an underlying theory a parametrisation has no (or very little, when you make the theory of 'some smoothness') predictive power. That is true for easy to define state variables, too.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Fri Feb 27th, 2009 at 10:43:03 AM EST
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