1. Shortcomings of GDP Leisure Time Improved Product Quality
Trade-offs on the Environment
Distribution of Output

2. What makes GDP go up? Nominal GDP Current output x current prices
A country produces more goods and services
Goods and services cost more
Nominal GDP
Current output x current prices
4. Real GDP
Current output x a base year price (price becomes constant)
5. To measure GDP at constant prices one needs a couple of things

3. 1. A Base Year
The year with which other years are compared to when using a price index
2. Price Index
A measurement that shows how the average price of a group of goods changes over time
$55
June
$62
October

4. Let’s take inflation out of GDP
The GDP Deflator is a price index number
GDP Deflator =
price of goods in a specific year
price of goods in the base year x100
Nominal GDP
Real GDP x 100 = GDP Deflator

5. This would also make sense…
Nominal GDP
Index # = Real GDP

6. Assume the following:
Year houses built price nominal GDP Real GDP GDP Deflator
$100,000
$115,000
$125,000
Can you calculate Nominal GDP, Real GDP, and the Deflator?
Not yet.
“01 is the base year =
$300,000
$345,000
86.9 x
300/345

7. Year houses built price nominal GDP Real GDP GDP Deflator
x $100, $300, $345,
$115,000
$125,000

8. Year houses built price nominal GDP Real GDP GDP Deflator
x $100, $300, $345,
x $115,000 = $460, $460,
$125,000

9. Year houses built price nominal GDP Real GDP GDP Deflator
x $100, $300, $345,
x $115,000 = $460, $460,
x $125,000 = $625, $575,