AP Macroeconomics / Unit 2: Economic Indicators and the Business Cycle
2.6 Real vs. Nominal GDP
Notes
- Nominal GDP: current prices. Real GDP: constant base-year prices.
- GDP deflator $\displaystyle =\frac{\text{nominal}}{\text{real}}\times100$.
- Use real GDP to compare output over time.
Practice
Nominal GDP = 1,200 and the deflator = 120. Real GDP:
$\displaystyle \frac{1200}{1.2}$.
Real GDP adjusts for:
Removes inflation.
If nominal GDP rises 5% and prices rise 5%, real GDP:
All the growth is from prices.
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