Why is accuracy in measuring inflation important for an understanding of how well national production is doing?

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In practice, government statisticians calculate real GDP growth (see the answer to the previous question) in the following way. The total dollar expenditure in the first year is measured, and then the total dollar expenditure in the second year is measured. The percentage change between these two is, of course, nominal GDP growth. The statisticians then get an estimate of the rate of price inflation between the two years. Real GDP growth is then found by noting that

real GDP growth = nominal GDP growth - inflation.

So, if you can't measure inflation properly, you can't measure real GDP growth.

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