Unit Two: Nominal GDP and Real GDP

January 29, 2015

Nominal GDP- Value of output produced in current prices.

* Price multiplied by Quantity

- Can increase from year to year if either output or price increase.

Real GDP- Value of output produced in constant or base year prices. 

* Base price multiplied by quantity

-Can increase from year to year only if output increases. 

Price index:measures inflation by tracking changed in the price of a market basket of goods compared with the base years. 

Price of market basket of goods

*divided by

Base price of market baskets 

*multiplied by

100

GDP Deflator: is a price index used to adjust from nominal to real GDP. 

-For years after the base years the GDP deflator is greater than 100.

-For yeats before the base year the GDP deflator is less than 100. 

Nominal GDP

*divided by

Real GDP

*multiplied by 

100

Inflation Rate: 

New GDP deflator 

-

Old GDP deflator

*Divided by

Old GDP Deflator

*nultiplied by 

100