Inflation is a sustained rise in the general level of prices, an increase in the price level.  As inflation goes up the amount of goods that money could once buy is diminished and thus less valuable.  It is ideal for a country to keep their inflation close to zero so that the country’s currency does not become devalued and the welfare of the people using that currency is not put in jeopardy.

Real Gross Domestic Product (GDP) is the most accurate number for comparing the GDP of an economy between different years as it holds the price level constant.  It is calculated as the sum of the quantities of final goods by constant, instead of current prices, held at a base year.  For instance if the base year is 2000 then the real GDP for 2002 is calculated by multiplying the quanitity of goods and services sold for 2002 against the prices in 2000, then the GDP growth can be compared for 2000 to 2002 and if calculated the same way for 2001 and 2003, etc.  Real GDP is also known as GDP in terms of goods, GDP in constant dollars, GDP adjusted for inflation, and GDP in chain year.

Nominal GDP is gross domestic product that is not adjusted for fluctuations in the price level, such as inflation or deflation.  It is the sum of quantities of final goods multiplied by their current price.  Nominal GDP is also known as Dollar GDP or GDP at current dollars.

Because nominal GDP does not take inflation into account it is not an accurate representation of the growth of an economy as it could be skewed by simply a rise in inflation, which gives a completely different representation of how well the economy is functioning.  A more informative number to look at is Real GDP

Gross Domestic Product (GDP) is the sum of income coming into a country during the economic period in which it is measured.  GDP can me measured by a country’s income (also called gross domestic income (GDI), or by the total cost of all finished goods and services produced within the country.  It is called “gross” domestic product as the “gross” means that depreciation is not taken into account for investment.  If depreciation were taken into account and net investment was calculated then it would be net domestic product.

GDP can be calculated from the follow equation:

GDP = CONSUMPTION + GROSS INVESTMENT + GOVERNMENT SPENDING + (EXPORTS - IMPORTS)

The participation rate is the number of people who are in the labor force divided by the population that is of working age.  Working age is considered to be sixteen years of age to sixty-five years of age.  This is an interesting statistic in that it describes the number of people who could be working choose to do so.  For instance, in recent history the participation rate of women has increased dramatically as it has become more common place for women to leave the role of homemaker and enter the work force.  As the participation rate increases this is usually a sign of increased economic growth

The pariticpation rate is calculated as follows:

Participation Rate = Labor Force / Population of Working Age