Unit 2 - Nominal/Real GDP

January 29, 2015

Nominal GDP: Value of Output produced in current prices   P x Q    In can increase from year to year. If either output or prices increases.

Real GDP: value of Output produced in constant or based year prices.. Adjusted for inflation   P x Q
Can increase from year to year only if output increases. "Current Production x Based Price"

Price Index: Mesures inflation by tracking changes in the price of market basket of goods compared to the base year.  Formula:      Price of Market basket of good in currents   X 100
                                                 Price of Market basket of good in base up

GDP: Its also a price index used to adjust from nominal GDP to real GDP.

•  In the base year the GDP Deflator will equal 100
• Years after base year the GDP Deflator will be greater than 100
• Years before tge base year the GDP Deflator will be less than 100

Formula:    Nominal GDP   X 100
                   Real GDP

Inflation Rate: Formula    New GDP Deflator - Old GDP Deflator    X 100
                                                     Old GDP Deflator