7. The difference between nominal GDP and real GDP is that nominal GDP:
A.
measures a country's production of final goods and services at current market prices, whereas real GDP measures a country's production of final goods and services at the same prices in all years.
B.
is measured in dollar terms, whereas real GDP is measured in terms of numbers of goods and services produced
C.
measures the total value of only final goods and services, whereas real GDP measures the value of all goods and services, both intermediate and final
D.
measures a country's production of final goods and services at fixed prices, whereas real GDP measures a country's production of all final goods and services at current market prices
7. The difference between nominal GDP and real GDP is that nominal GDP:
| A. |
measures a country's production of final goods and services at current market prices, whereas real GDP measures a country's production of final goods and services at the same prices in all years. |
|
| B. |
is measured in dollar terms, whereas real GDP is measured in terms of numbers of goods and services produced |
|
| C. |
measures the total value of only final goods and services, whereas real GDP measures the value of all goods and services, both intermediate and final |
|
| D. |
measures a country's production of final goods and services at fixed prices, whereas real GDP measures a country's production of all final goods and services at current market prices |
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Real versus nominal GDP
Consider a simple economy that produces two goods: cupcakes and erasers. The following table shows the prices and quantities of the goods over a three-year period.
|
Year |
Cupcakes |
Erasers |
||
|---|---|---|---|---|
|
Price |
Quantity |
Price |
Quantity |
|
|
(Dollars per cupcake) |
(Number of cupcakes) |
(Dollars per eraser) |
(Number of erasers) |
|
| 2010 | 2 | 125 | 3 | 155 |
| 2011 | 4 | 135 | 3 | 210 |
| 2012 | 2 | 125 | 3 | 165 |
1. Use the information from the previous table to fill in the following table.
|
Year |
Nominal GDP |
Real GDP |
|---|---|---|
|
(Dollars) |
(Base year 2010, dollars) |
|
| 2010 | ||
| 2011 | ||
| 2012 |
2. From 2011 to 2012, nominal GDP (increased/decreased) , and real GDP (increased/decreased) .
3. Why is real GDP a more accurate measure of an economy's production than nominal GDP?
a. Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.
b. Real GDP is not influenced by price changes, but nominal GDP is.
c. Real GDP does not include the value of intermediate goods and services, but nominal GDP does.
