02/05/14 Nominal v. Real GDP

• Nominal GDP- Value of output produced in current prices.
• Real GDP- Value of output produced in constant or based year prices. 
• Nominal GDP
• Can increase from year to year if either output or price increase.
• Nominal GDP= QxP
• Use of nominal GDP when finding inflation.
• Real GDP
• Can increase year to year only if output increases.
• Real GDP= PxQ
• Use of real GDP when finding economic growth. 

Suppose that a very small economy produces only televisions and computers.  Determine nominal GDP and real GDP in Year 4, using the following information:

IN Year 1, the base year, 10 computers sold @ $2,000 each and 15 televisions sold @ $500 each. In Year 4, 17 computers sold @ $2,200 each and 20 televisions sold @550 each. 

* To find real GDP, take current quantity of product with base price of item.  Ex: Computers 17x 2,000

For more help, check out this video:

Real GDP and Nominal GDP

• GDP Deflator

• In base year, the GDP deflator will always be 100.
• Four years after the base year, the GDP deflator will be more than 100.
• For years before the base year, the GDP deflator will be less than 100. 

For more help, check out this video:

GDP Deflator