Unformatted text preview: Real GDP in year 3 (with year 1 as base year) = (10 X $1) + (9 X $6) = $64 The ratio of nominal GDP to real GDP is ( $74 / $64 ) - 1 = 16%. This means that the price level rose 16% from year 1, the base year, to year 3, the comparison year. Rearranging the terms in the equation for the GDP deflator allows for the calculation of nominal GDP by multiplying real GDP and the GDP deflator. This equation demonstrates the unique information shown by each of these measures of output. Real GDP captures changes in quantities. The GDP deflator captures changes in the price level. Nominal GDP captures both changes in prices and changes in quantities. By using nominal GDP, real GDP, and the GDP deflator you can look at a change in GDP and break it down into its component change in price level and change in quantities produced....
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- Fall '08
- Microeconomics, Ratio, Gdp, gross domestic product