REAL GDP. Recap: What is GDP? Private consumption + Gross investing + Government spending + Exports However is something missing?

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Presentation transcript:

REAL GDP

Recap: What is GDP? Private consumption + Gross investing + Government spending + Exports However is something missing?

GDP In the year 1950 the GDP for The United States was $300.2 billion In the year 2010 the GDP for the United states was $ billion This means the U.S. economy has grown about $14664 billion dollars in 60 years!

GDP This may be true but what is this example missing? This is an example of nominal GDP What is nominal GDP? This is GDP that hasn’t accounted for inflation rates!

GDP Inflation: The increase in the price of goods overtime. This means that through the years the prices of goods can rise due to how much money is in circulation. This means the purchasing power of a dollar depreciates every year!

Inflation Example

So this means that inflation rates lower the amount of value a dollar has! $1 in 1950 = 9.05 in 2010! That’s an inflation rate of 804.8%

Back to the Future Example

Takeaways Real GDP gives economist an idea of the changes in prices through time. Real GDP tells us more about purchasing power based on different years. A dollar today is not worth the same it was yesterday

Next Class We will find out how to calculate real GDP

Citations EconMovies 6: Back to the Future (Nominal vs. Real, Unemployment, Inflation). (n.d.). Retrieved August 14, Investopedia Video What Is Inflation. (n.d.). Retrieved August 14, 2015, from 2VNdqSere0