Nominal vs Real GDP

Nominal GDP- value of output produced in current prices
(can increase year to year )

• Formula : P x Q. Of the current year.
• used to find inflation

Real GDP- value of output produced in base year price

• real GDP can increase only if output increase.
• Formual : P x Q. Price of the base year times the quantity of the current year.

Ex: Determine nominal GDP

 Year 1 (Base year) 10 computers sold at $2000 ach and 15 tv sold at $500 dollars each. Year 4 17 computer sold @ $2,200 each and 20 tv sold @$550 each.

                        Computers                         Tv

year 1           10@$2000                     15@ $500

                      total: $20,000                  Total 7,500

Year 2         17@ 2,200                      20@ 550

                         =$37,400                   = $11,000

Answers : Real GDP for year 4 =$4400

Nominal for year 4= $48,400

 

Nominal vs real Gdp video

GDP Deflator

• Base year GDP is always 100
• Years before the base year its less than 100
• years after the base years the deflator is more than 100