Monday, February 13, 2017

Real GDP vs. Nominal GDP

  • Nominal - It is the value of output produced in current prices. Can increase from year to year. If either output or price increase.
    • Current prices
    • Price x Quantity(output)
  • Real - Value of output produced in constant base year prices. Adjusted for inflation.
    • Price x Quantity(output)
    • Can increase from year to year only if output increases.
    • Trying to measure economic growth.
      • In the base year nominal and real GDP will be equal.
      • Years after the base year nominal GDP will exceed real GDP.
      • Years before base year real GDP will exceed nominal GDP.
  • GDP Deflator
    • Price index used to adjust from nominal to real GDP
    • Nominal / Real x 100
    • Consumer Price Index (CPI)
    • Measures inflation by tracking changes in the price of market basket of goals (get several items)
    • Price of market basket in current year / Price of market basket in base year x 100

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2 comments:

  1. Umer K.February 13, 2017 at 5:37 PM

    Your blog is very well organized and neat, with all the information there and easy to read. I suggest to maybe add some visuals that would further help us understand the topic at hand, such as images or videos.

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  2. Alayna W.February 13, 2017 at 5:40 PM

    Your blog is very neat and easy to understand. To make it easier for the reader to see the formulas you should write "formula" or "the formula for..." just to make it obvious what the formula is.

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