Real versus nominal GDPConsider a simple economy that produces two goods: pens and oranges. The following table shows the prices and quantities of the goods over a three-year period.YearPensOrangesPriceQuantityPriceQuantity(Dollars per pen)(Number of pens)(Dollars per orange)(Number of oranges)201711152175201821504180201941204190 Use the information from the preceding table to fill in the following table.YearNominal GDPReal GDPGDP Deflator(Dollars)(Base year 2017, dollars)2017 2018 2019 From 2018 to 2019, nominal GDP , and real GDP . The inflation rate in 2019 was . Why is real GDP a more accurate measure of an economy's production than nominal GDP?Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not. Real GDP is not influenced by price changes, but nominal GDP is. Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Real versus nominal GDP

Consider a simple economy that produces two goods: pens and oranges. The following table shows the prices and quantities of the goods over a three-year period.

Year	Pens	Oranges
Price	Quantity	Price	Quantity
(Dollars per pen)	(Number of pens)	(Dollars per orange)	(Number of oranges)
2017	1	115	2	175
2018	2	150	4	180
2019	4	120	4	190

Use the information from the preceding table to fill in the following table.

Year	Nominal GDP	Real GDP	GDP Deflator
(Dollars)	(Base year 2017, dollars)
2017
2018
2019

From 2018 to 2019, nominal GDP , and real GDP .

The inflation rate in 2019 was .

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.

Real GDP is not influenced by price changes, but nominal GDP is.

Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.

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