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.
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.