Question otobo Finance & Economics

Is norminal GDP of a country like Nigeria dependent on unemployment and inflation?

hello, please I wanted to ask if in economics the norminal GDP of a country like Nigeria is dependent on unemployment and inflation in the country.

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Answer Expert #26342

The gross domestic product (GDP) is a broad measure of the value of goods produced in an economy (Mankiw, 2015). The value can be presented in either nominal or real terms.  In nominal terms, the GDP is the value given in today’s money, whereas in real terms the value is adjusted to allow for inflation, which allows for the value to be compared with previous years/periods, on a like for like basis. 

Therefore, the most direct impact on nominal GDP is inflation. If the actual production output of a country remains the same, but inflation is present, the value of the goods and services will increase due to the presence of inflation, showing an increase in the GDP (Lawson, 2006). For example, if the GDP is £1 billion, and inflation is 10%, the following year the GDP will increase by 10% to £1.1 billion. This shows an increase in value only, not in output. 

In many developed nations, inflation remains relatively constrained, but in developing nations, such as Nigeria, there is a greater propensity for inflation (Tanzi, 2016). This is because inflation occurs where there is too much money chasing too few goods, which pushes up the prices of those goods in line with supply and demand functions (Nellis and Parker, 2006). Unemployment, increasing or decreasing, also impacts on the GDP – it reduces or increases the level of disposable income in an economy used to purchase goods and services (Mankiw, 2015). This will then help to constraint or stimulate an economy, which will impact on the GDP by influencing the demand levels, and where demand grows too quickly, and supply cannot match the pace, inflation will accelerate. Therefore, both inflation and unemployment impact on the nominal GDP, with inflation a particularly notable influence in developing nations such as Nigeria.

References

Lawson, T., 2006. Economics and Reality. Abingdon: Routledge.

Mankiw, N.G., 2015. Macroeconomics. New York: Worth Publishers.

Nellis, J.G., and Parker, D., 2006. Principles of the Business Economics. Harlow: Prentice Hall.

Tanzi, V., 2016. Public Fiance in Developing Countries: An Introduction. In: M.M. Erdogdu and B. Christiansen, eds., Handbook of Research on Public Finance in Europe and the MENA Region. Hershey, PA: IGI Global, pp.1–10.