AP Economics Mr. Bernstein Module 11: Interpreting Real Gross Domestic Product January 22, 2015

AP Economics Mr. Bernstein Interpreting Real Gross Domestic Product Objectives Learn the difference between real GDP and nominal GDP Understand why real GDP is the appropriate measure of real economic activity 2

AP Economics Mr. Bernstein What Does GDP Tell Us? The value of current production at current price levels Is a gauge of the total size of an economy Is used to compare economies GDP can be misleading – ie 1996 dollars are worth less than today’s dollars 3

AP Economics Mr. Bernstein Real GDP: A Measure of Aggregate Output Inflation’s effect on GDP GDP = P * Q. So if P rises, so does GDP, even if Q does not So we measure Real GDP Use a baseline point in time, ie “in 1996 dollars” Aka Constant Dollar GDP 4

AP Economics Mr. Bernstein Real GDP: A Measure of Aggregate Output 5

AP Economics Mr. Bernstein What Real GDP Doesn’t Measure Positive statistics…not normative Does not include Underground economy DIY Sale of used goods Volunteerism Value of Leisure Does not measure a nation’s self-esteem or sense of happiness 6