Real versus nominal GDP
Consider a simple economy that produces two goods: apples and muffins. The following table shows the prices and quantities of the goods over a three-year period.
Year
Apples
Muffins
Price
Quantity
Price
Quantity
(Dollars per apple)
(Number of apples)
(Dollars per muffin)
(Number of muffins)
2008
1
150
2
160
2009
2
135
4
230
2010
3
110
4
165
Use the information from the previous table to fill in the following table.
Year
Nominal GDP
Real GDP
(Dollars)
(The base year 2008, dollars)
2008
2009
2010
1. From 2009 to 2010, nominal GDP (decreased or increased), and real GDP (decreased or increased).
2. Why is real GDP a more accurate measure of an economy's production than nominal GDP?
A. Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.
B. Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.
C. Real GDP is not influenced by price changes, but nominal GDP is.
Real versus nominal GDP
Consider a simple economy that produces two goods: apples and muffins. The following table shows the prices and quantities of the goods over a three-year period.
Year |
Apples |
Muffins |
||
---|---|---|---|---|
Price | Quantity | Price | Quantity | |
(Dollars per apple) | (Number of apples) | (Dollars per muffin) | (Number of muffins) | |
2008 | 1 | 150 | 2 | 160 |
2009 | 2 | 135 | 4 | 230 |
2010 | 3 | 110 | 4 | 165 |
Use the information from the previous table to fill in the following table.
Year | Nominal GDP | Real GDP |
---|---|---|
(Dollars) | (The base year 2008, dollars) | |
2008 | ||
2009 | ||
2010 |
1. From 2009 to 2010, nominal GDP (decreased or increased), and real GDP (decreased or increased).
2. Why is real GDP a more accurate measure of an economy's production than nominal GDP?
A. Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.
B. Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.
C. Real GDP is not influenced by price changes, but nominal GDP is.