ECON 410 — Module C: Real vs. Nominal GDP

Set real GDP and inflation to compute the deflator and see exactly how nominal GDP growth is split between real output and price changes.

Base year Real GDP ($B)$18,000B

Real GDP growth rate (%)2.5%

Inflation rate (%)3.5%

Real GDP

$18,450B

Nominal GDP

$19,096B

GDP Deflator

103.5

Price level change

+3.5%

Where does nominal GDP growth come from?

Real output growth2.5%

real

Price effect (inflation)3.5%

inflation

Total nominal growth6.1%

nominal

Formula: GDP Deflator = (Nominal GDP / Real GDP) × 100. Deflator = 100 in base year; each point above 100 = 1% above base-year prices.

A simple 2-good economy. Adjust prices and quantities to see exactly how nominal and real GDP diverge over time.

Good 1 — Apples

Base year price ($/unit)$2.00

Current year price$3.00

Base year quantity100

Current year quantity120

Good 2 — Computers

Base year price ($/unit)$500

Current year price$600

Base year quantity10

Current year quantity12

	Base year	Current year	% Change
Nominal GDP (current prices × current qty)	$5,200	$7,560	+45.4%
Real GDP (base prices × current qty)	$5,200	$6,240	+20.0%
GDP Deflator	100.0	121.2	+21.2%

Calculate each answer on paper first, then select your choice below.

Score: 0 / 0