Unexpected Inflation

Firstly, Wheelan addresses the fact that inflation hurts the lenders but it helps the debtors. If inflation occurs, when the debtor has to pay the lender back, he might still give him the same dollar amount however the value of that dollar and the purchasing power of that same amount of money has gone done due to inflation. Thus, the debtor is left better off than the lender. This creates a societal problem in the end because banks and people who lend money are not going to be willing to lend money because they don’t know what inflation is going to be, so they don’t know if they money they will receive back will have the same purchasing power. Thus, the money people would have used from the bank to promote economic growth through business as well as buy things and thus increase the GDP is no longer happening because of unexpected inflation causing people to be apprehensive about lending. 

Real GDP

In Chapter 9 of Naked Economics, Whellan discusses key macroeconomic concepts including GDP, GDP per capita and finally real GDP. To understand what real GDP means for the average person, we must first compare the real GDP of a country to the nominal GDP. Nnominal GDP could be very high,but  if inflation is high too then we arn't that much better off. However, real GDP takes into account the changes in inflation. Let us take cars for example. If in one year we are producing 20 cars at a price of 10,000 our nominal GDP is going to be 200,000. In the next year, if we produce 10,000 cars for 25,000 our nominal GDP is going to be 250,000 indicating that the people are left better off. However, Wheelan shows that this is in fact false. Although the GDP went up, we still only have 10 cars so we are not left better off. Thus, nominal GDP doesn't really show much better off the country and its citizens are. However, Real GDP does. The Real GDP is going to show us if we really do have growth, based on how much we produce taking into account inflation. So, for the average citizen, Real GDP shows us if we are actually better off then we were before, taking into account changes in price.