UNIT 2: GDP 2/1/16

Nominal GDP - Value of output provided in current prices, can increase year to year if output or prices increase. Not adjusted for inflation

Real GDP - value of output produced in constant prices or base year prices. Adjusted for inflation can increase from year to year only if out put increases.

To find Nominal GDP you multiply Price by Quantity in the same year
To find Real GDP you multiply Price from base year by Quantity of the new year

Increase in Economy = Real GDP

Increase in inflation = Nominal GDP

GDP deflator - price index to go from Nominal to Real GDP

The equation to get the GDP deflator is Nominal divided by Real GDP then multiplied by 100

Consumer Price Index - most commonly used to measure for inflation and measures cost of goods of a typical family

The equation is:

Cost of market bag of goods in year 2        *  100
Cost of market bag of goods in base year

The equation for Inflation is:

Price Index in year 2 - Price Index in year 1    * 100  
Price Index in year 1

Certain groups are hurt and helped by inflation. Those hurt are usually people who save, loan out, or people on a fixed income. Those helped are usually those who borrow, or debtors.