Unit 2, Day 3

Nominal GDP- Value of output produced in current prices. Can increase from yr to yr if either output or prices increase Total Q*P

Real GDP- Value of output produces in constant or base year prices. Adjusted for inflation. Can increase year to year only if output increases. P*Q= Real GDP. If we want to measure economic growth, we will use Real GDP.
If we want to measure increase in prices(inflation) we will use nominal GDP

	Quantity in 2015	Quantity in 2016	Price in 2015	Price in 2016
Pizzas	5	6	$10	$15
CD	4	5	$15	$20
Stereo	2	4	$610	$550
Automobile	1	1	$10,000	$12,000

Nominal GDP: 5*10=50 

4*15=60

2*610=1220

1*10,000= 10,000 Total= 11,310 = Nominal GDP in 2015= Real GDP 2015

Nominal GDP 2016: 14,390

Real GDP 2016= Quantity 2016* Price 2015= 12,535

GDP Deflator-  Price index used to adjust from nominal to real. (Nominal GDP/Real GDP) *100

In the base year, the GDP deflator will always equal 100. For years after the base year, the GDP deflator is greater than 100. Years before base year, GDP is less than 100.

Consumer Price Index(CPI)- Most commonly used measurement for inflation. Measures the cost of a market basket of goods for a typical urban american family. 

(Cost of a market basket of goods in a given yr)/ (cost of market basket of goods in base year) * 100