xid-652003_1

# xid-652003_1 - Nominal vs Real GDP and the Chained Dollar...

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Nominal vs. Real GDP and the Chained Dollar Method José R. Rodríguez Solís

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Nominal Versus Real GDP Nominal GDP Real GDP Price Index GDP Price Index Price Index In Given Year = x 100 Price of Market Basket In Specific Year Price of Same Basket In Base Year Real GDP = Nominal GDP Price Index (in hundredths)
NOMINAL GDP VERSUS REAL GDP Chained-Dollar Method of Calculating Real GDP The chained-dollar method does not use the base-year prices. The chained-dollar method uses the prices of current year and the preceding year. We show the calculation in fives steps.

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NOMINAL GDP VERSUS REAL GDP Step 1: Calculate the value of production in both 2005 and 2006 using the prices of 2005. In 2005: Value of apples = 100 apples x \$1.50 = \$150 Value of oranges = 200 oranges x \$0.75 = \$150 Nominal GDP in 2005 = \$150 + \$150 = \$300
NOMINAL GDP VERSUS REAL GDP In 2006: Value of apples = 160 apples x \$1.50 = \$240 Value of oranges = 220 oranges x \$0.75 = \$165 2006 Quantities at 2005 prices = \$240 + \$165 = \$405

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NOMINAL GDP VERSUS REAL GDP Using 2005 prices: Value of production in 2005 is \$300.
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## This note was uploaded on 04/07/2009 for the course ECO 201 taught by Professor Abc during the Spring '08 term at Northern Virginia.

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xid-652003_1 - Nominal vs Real GDP and the Chained Dollar...

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