1. Why does inflation make nominal GDP a poor measure of the increase in total production?
Inflation makes nominal GDP a poor measure of the increase in total production because inflation will only cause prices to increase and the amount of currency to decrease. Nominal GDP will make the economic growth rate appear to be higher than the true GDP.
2. Which component of GDP will be affected by each of the following transactions involving FlyCheap Airlines? If you do not believe any component will be affected, briefly explain why.
i. You purchase a ticket on a FlyCheap Airlines to visit your niece.