5. Real versus nominal GDP Consider a simple economy that produces two goods: pencils and muffins. The following table shows the prices and quantities of the goods over a three-year period. Price Year (Dollars per pencil) 2014 1 2015 2016 2 Year 2014 2015 2016 3 Nominal GDP (Dollars) Pencils Use the information from the preceding table to fill in the following table. From 2015 to 2016, nominal GDP Quantity (Number of pencils) 145 165 110 The inflation rate in 2016 was Real GDP (Base year 2014, dollars) GDP Deflator Price (Dollars per muffin) 2 4 4 Muffins , and real GDP Why is real GDP a more accurate measure of an economy's production than nominal GDP? Quantity (Number of muffins) 195 225 165 Real GDP does not include the value of intermediate goods and services, but nominal GDP does. ● Real GDP is not influenced by price changes, but nominal GDP is. Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.
5. Real versus nominal GDP Consider a simple economy that produces two goods: pencils and muffins. The following table shows the prices and quantities of the goods over a three-year period. Price Year (Dollars per pencil) 2014 1 2015 2016 2 Year 2014 2015 2016 3 Nominal GDP (Dollars) Pencils Use the information from the preceding table to fill in the following table. From 2015 to 2016, nominal GDP Quantity (Number of pencils) 145 165 110 The inflation rate in 2016 was Real GDP (Base year 2014, dollars) GDP Deflator Price (Dollars per muffin) 2 4 4 Muffins , and real GDP Why is real GDP a more accurate measure of an economy's production than nominal GDP? Quantity (Number of muffins) 195 225 165 Real GDP does not include the value of intermediate goods and services, but nominal GDP does. ● Real GDP is not influenced by price changes, but nominal GDP is. Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.
Chapter6: Tracking The U.s. Economy
Section: Chapter Questions
Problem 1.1P
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Transcribed Image Text:5. Real versus nominal GDP
Consider a simple economy that produces two goods: pencils and muffins. The following table shows the prices and quantities of the goods over a
three-year period.
Price
Year (Dollars per pencil)
2014
1
2015
2016
2
3
Year
2014
2015
2016
Nominal GDP
(Dollars)
Pencils
Use the information from the preceding table to fill in the following table.
From 2015 to 2016, nominal GDP
Quantity
(Number of pencils)
145
165
110
The inflation rate in 2016 was
Real GDP
(Base year 2014, dollars) GDP Deflator
Price
(Dollars per muffin)
2
4
4
Muffins
, and real GDP
Why is real GDP a more accurate measure of an economy's production than nominal GDP?
Quantity
(Number of muffins)
195
225
165
Real GDP does not include the value of intermediate goods and services, but nominal GDP does.
Real GDP is not influenced by price changes, but nominal GDP is.
Ⓒ Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.
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