Nominal GDP is the total goods and services (expressed in dollars) produced this year using today’s prices.
Real GDP is the total goods and services (expressed in dollars) produced this year using base-year prices.
Nominal GDP DOES NOT account for inflation.
Real GDP DOES account for inflation.
Scenario: Given the current year is Year 3, calculate the Nominal GDP.
Year 1 | Year 2 | Year 3 | |
---|---|---|---|
P_{x} | $4 | $6 | $8 |
P_{y} | $8 | $12 | $10 |
Q_{x} | 8 | 12 | 15 |
Q_{y} | 6 | 10 | 7 |
Quantities {Today}
Q_{x} = 15
Q_{y} = 7
Prices {Today}
P_{x} = $8
P_{y} = $10
Nominal GDP = (Q_{x} x P_{x} {today}) + (Q_{y} x P_{y} {today})
Nominal GDP = (15 x $8) + (7 x $10)
Nominal GDP = ($120) + ($70)
Nominal GDP = $190
Answer: In today's prices, the Nominal GDP for Year 3 is $190.
Scenario: Assuming the base year is Year 1, calculate the Real GDP for Year 3.
Year 1 | Year 2 | Year 3 | |
---|---|---|---|
P_{x} | $4 | $6 | $8 |
P_{y} | $8 | $12 | $10 |
Q_{x} | 8 | 12 | 15 |
Q_{y} | 6 | 10 | 7 |
Quantities {Today}
Q_{x} = 15
Q_{y} = 7
Prices {Base Year}
P_{x} = $4
P_{y} = $8
Real GDP = (Q_{x} x P_{x} {base year}) + (Q_{y} x P_{y} {base year})
Real GDP = (15 x $4) + (7 x $8)
Real GDP = ($60) + ($56)
Real GDP = $116
Answer: When compared to base-year prices in Year 1, the Real GDP for Year 3 is $116.
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Imagine that Country ABC only sells two goods (Good X & Y) to its consumers. Considering the following, what was the nominal GDP for Year 2?
Year 1 | Year 2 | Year 3 | |
---|---|---|---|
Price of Good X | $10 | $12 | $16 |
Quantity Sold of Good X | 500 | 650 | 700 |
Price of Good Y | $5 | $10 | $8 |
Quantity Sold of Good Y | 300 | 500 | 800 |
Imagine that Country ABC only sells two goods (Good X & Y) to its consumers. Considering the following, what was the real GDP for Year 3 with Year 2 as the base?
Year 1 | Year 2 | Year 3 | |
---|---|---|---|
Price of Good X | $10 | $12 | $16 |
Quantity Sold of Good X | 500 | 650 | 700 |
Price of Good Y | $5 | $10 | $8 |
Quantity Sold of Good Y | 300 | 500 | 800 |
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