ECON: Rising entitlement payments... someone, exactly, payments, referring, please

rkapoor

…that result from an increasing price level affect nominal GDP, but not real GDP.
Would someone please explain this to me? What is an entitlement payment? This must be a language thing for me…
what exactly is this referring to?
thx

Wendy01

I think the key is “result from increasing price level.” Nominal GDP increases when price levels go up from inflation.
For it to affect Real GDP, you’d have to see an increase in the number of entitlements being paid or an increase in the amount of entitlements over and above the inflation rate.
Tricky question though… under exam conditions, I might not be able to think through the subtlety.

liquidity

Hmm I thought real GPB is only ever affected by technology, labour force and capital (Side note: now that technology boomed in 20001, capital in 2007 and labour force being in decline since the baby boomers I sometimes get frighted about budget deficits incurred by entitlement .
Spending only moves aggregate demand, therefore only nominal GDP is affected. AFAIK, entitlement is what thommo has described, all government sponsored welfare spending.