Nominal and Real GDP (2/3)

Nominal and Real GDP (2/3)

Nominal GDP

• value of output produced in current prices; can increase from yr to yr if output or prices increase
• N GDP = Current P * Current Q

Real GDP

• value of output produced in constant base yr prices; adjusts for inflation; can increase yr to yr if output increases
• R GDP = Base Yr P * Current Q

Other Info

• only in the base yr does N GDP = R GDP
• yrs after the base-yr, N GDP > R GDP
• yrs before the base-yr, N GDP < R GDP 

GDP Deflator

• price index used to adjust from nominal to real GDP
• (Nominal / Real) *100

Consumer Price Index (CPI)

• measures inflation by tracking change in the price of a mrkt basket of goods
• ex of market basket of goods, cars
• (Price of Mrkt Bskt in Current Yr / Price of Mrkt Bskt in Base Yr) * 100