1. Measuring Real GDP

2. Two Variables of GDP: P and Q PriceQuantityGDP $102$20 $152$30 $103$30 If you ONLY had GDP column, you could not tell WHY the GDP rose: Price or Quantity

3. Real GDP Chose a base year (2000) and use the prices of that year Then multiply quantity of a given year using base-year price

4. YearPrice of Watches Quantity of Watches produced GDPReal GDP 1987$20---Price in current year X Quantity in Current year Price in 1987 X Quantity in current year 2003$501,900$50*1,900$20*1,900 $38,000 2004$602,000$60*2,000$20*2,000 $40,000 2005$701,855$70*1855$20*1855 $37,100