Unit Two: Chapter 19- Real and Nominal GDP

Real and Nominal GDP

Notes from (1/29/16)

Nominal GDP- The value of output produced in current prices 
     -Can increase from year to year (either price or output increases)
     -Inflation measurements 
     - Nominal GDP = Price x Quantity

Real GDP- The value of output produced in constant base year prices
     -Quantity changes
     -Can only increase from year to year ONLY if output increases
     -Used to measure economic growth
     -Adjusted for inflation
     -Real GDP = Base Year Price x Current Year Quantity

GDP Deflator- Price index used to adjust from nominal to real GDP
     
     - (Nominal GDP / Real GDP) x 100 

-In the base year, will ALWAYS equal 100
-In years after base year, will be greater than 100
-In years before base year, will be less than 100

Consumer Price Index (CPI)- Most commonly used measurement of inflation

(Price of  market basket in a particular year / Price of market basket in base year) x 100

Inflation =  [ (GDP Deflator in new or current year - GDP Deflator in old or base year) / 
                                                       GDP Deflator in old year ] x 100


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