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Real vs Nominal GDP


Nominal GDP- the value of output produced in current prices

  • can increase from year to year if either output or price increase. (Both things change) (PxQ)
Real GDP- value of output (quantity) produced in constant base year ( first year) prices that is adjusted for inflation.
  • can increase from year to year only if output increases (PxQ)

In the base year the current price is going to be equal to the base year price.

Base year: Real GDP= Nominal GDP
  • In years after the base year nominal GDP exceeds real GDP in years before the base year, real GDP exceeds nominal GDP.
GDP deflator- price index that is used to adjust from nominal to real GDP
  • in the base year the GDP will equal to 100 
  • After the base year it will be greater than 100
  • before the base year it will be less than 100





Deflator= New-old/old x 100


 GDP Deflator= nominal/real GDP x100


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Inflation- general rise in the price level


Inflation rate- new-old/old × 100



Consumer price index(CPI)- measures inflation by tracking the yearly price of a fixed basket of consumer goods and services. Indicates changes in the price level and in the cost of living. 
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Comments

  1. UnknownMarch 2, 2018 at 5:52 AM

    The base year will be the earliest year unless stated otherwise and to find inflation rate you can also use the GDP deflator by subtracting the deflator of year 2 by year 1 all divided by year 1, multiplied by a 100.

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