Topic 6: Real V Nominal GDP

Real GDP

GDP that is expressed in constant, or unchanging dollars. Some sort of base year and adjusts for inflation.

Nominal GDP

GDP that is measured in current prices. Does not account/adjust for inflation from year to year. Inflation is included.

Real GDP deflates Nominal by

adjusting for inflation in terms of base year prices.

ex: nominal may be steadly increasing but real could be going up with little pockets of down

Is nominal or real GDP better for measuring actual growth?

Real GDP

GDP deflator

measures the price of all goods produced

CPI

measures the prices of the goods and services only brought by consumers

An increase in prices by firms of the government will

show up in GDP deflation but not in CPI

GDP inflator only shows goods produced

domestically, imports do not count

GDP deflator=

Nominal GDP

____________ *100

Real GDP