Real GDP is preferred to nominal GDP as a measure of economic performance because:
A) nominal GDP uses current prices and thus may over- or understate true changes in output.
B) nominal GDP only includes goods and excludes services.
C) nominal GDP is not adjusted for population changes.
D) real GDP accounts for changes in the quality of goods and services produced.
)
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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 oranges. The following table shows the prices and quantities for the goods over a three-year period.
| Year |
Apples
|
Oranges
|
||
|---|---|---|---|---|
| Price | Quantity | Price | Quantity | |
| (Dollars per apple) | (Number of apples) | (Dollars per orange) | (Number of oranges) | |
| 2010 | 1 | 120 | 1 | 195 |
| 2011 | 2 | 130 | 4 | 195 |
| 2012 | 4 | 130 | 4 | 145 |
A. Use the information from the previous table to fill in the following table.
| Year | Nominal GDP | Real GDP | GDP Deflator |
|---|---|---|---|
| (Dollars) | (Base year 2010, Dollars) | ||
| 2010 | |||
| 2011 | |||
| 2012 |
B. From 2011 to 2012, change in nominal GDP is __________, and real GDP is ________.
C. The inflation rate in 2012 was ____________.
D. Why is real GDP a more accurate measure of an economy's production than nominal GDP?
a. Real GDP does not include the value of intermediate goods and services, but nominal GDP does.
b. Real GDP includes the value of exports, but nominal GDP does 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: 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.
