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Real GDP v. Nominal GDP. What GDP Tells Us GDP measures the size of the economy, so it is a means for comparison over time and between economies.

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Presentation on theme: "Real GDP v. Nominal GDP. What GDP Tells Us GDP measures the size of the economy, so it is a means for comparison over time and between economies."— Presentation transcript:

1 Real GDP v. Nominal GDP

2 What GDP Tells Us GDP measures the size of the economy, so it is a means for comparison over time and between economies

3 Why Real GDP? GDP change over time can be distorted by price changes Nominal GDP – value of production (or value of spending) in contemporary dollars Real GDP adjusts for price changes, making comparison over time of aggregate output more valid

4 Real GDP and Output Growth Real GDP = (nominal GDP X 100) price index Output growth = (real GDP in another year – real GDP in base year)X 100 real GDP in base year “Chained” numbers used by the U.S. – average of output growth using both earlier and later year as base

5 What Real GDP Doesn’t Measure Larger populations have an advantage – GDP per capita removes the impact Living standards not reflected – uneven distribution, non-monetary components of good life Bad government and other factors can keep wealth from reaching the people


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