Units of Year Outputs Price ofPrice Indox Year 100) 100 Unadjusted or Nominal GD

Question

Units of Year Outputs Price ofPrice Indox Year 100) 100 Unadjusted or Nominal GDP Adjusted or Real, GD Gioods (output) (Year 1-Base 2007 $ 10 $50 $50 2008 20 200 140 2009 25 10 30 2010 28 2011 14 35 2014 Price index x100 Price of same market basket in base year or Price Index- nominal GDP x100 real GDP Real GDP = Nominal GDP Price Index x100 Nominal GDPGDP for which the price levels have not been adjusted to account for inflation or deflation ..(reflects the prices that prevailed when the output was produced) Real GDPGDP that has been adjusted (inflated or deflated) for price changes

Explanation / Answer

Nominal GDP (nth year) = units of output (nth year) x Price of output (nth year)

Price index = 100 x (Units of output in the base year (=5) x Price of output (nth year))/(Price of output (base year) x Units of output in the base year (=5))

(e.g. year 2009: PI = 100 x 5 x 25/(5 x 10) = 250)

Real GDP = Nominal GDP/Price index x 100

Year Units of output Price ($) Price index Nominal GDP ($) Real GDP ($) 2007 5 10 100 50 50 2008 7 20 200 140 70 2009 8 25 250 200 80 2010 10 30 300 300 100 2011 11 28 280 308 110 2014 14 35 350 490 140

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