ECON 2210 Lecture Notes - Real Income, Relative Price, Money Supply
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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.
The average propensity to consume (APC) equals
the change in real disposable income divided by the change in consumption expenditures. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
the change in consumption expenditures divided by the change in real disposable income. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
real disposable income divided by consumption expenditures. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
consumption expenditures divided by real disposable income. The consumption function shows how much
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