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Unformatted text preview: pricesgives you a real growth factor (1 + real growth rate) for those years (v) real GDP in year 2 = real growth factor times nominal GDP in year 1 Table 2.1 To compute the real GDP in year 3, calculate the growth factor between year 2 and year 3 and then multiply by the real GDP in year 2. 2. Measuring the Price Level In a one good economy if I knew nominal GDP (PQ) and I knew real GDP (Q), I could find the price level using the formula P = PQ/Q = nominal GDP/real GDP. This is how the government forms a estimate of the price level in our many-good economy implicit price level = nominal GDP/real GDP Table 2.1 3. Real GDP as a Measure of Welfare First, need to adjust for population size by dividing by the number of people in the economy to get real GDP per capita. Still problems (i) distribution of income (ii) nonmarket goods not included (iii) no value for leisure (iv) no measure of environmental quality...
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- Spring '08