5. Real versus nominal GDP Consider a simple economy that produces two goods: pens and muffins....

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5. Real versus nominal GDP

Consider a simple economy that produces two goods: pens and muffins. The following table shows the prices and quantities of the goods over a three-year period.

Year	Price (Dollars per pen)	Quantity (Number of pens)	Price (Dollars per muffin)	Quantity (Number of muffins)
2018	1	150	2	160
2019	2	135	4	230
2020	3	110	4	165

Use the information from the preceding table to fill in the following table.

From 2019 to 2020, nominal GDP _______ , and real GDP _______ .

The inflation rate in 2020 was _______ .

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

Real GDP is not influenced by price changes, but nominal GDP is.
Real GDP includes the value of exports, but nominal GDP does not.
Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.

5. Real versus nominal GDP Consider a simple economy that produces two goods: pens and muffins. The following table shows the

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Answer 1

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Answer #1

Year	NGDP	RGDP	GDP Deflator
2018	1150+2160 = 470	470	100
2019	2135+4230 = 1190	1135+2230 = 595	1190/595*100 = 200
2020	3110+4165 = 990	1110+2165 = 440	990/440*100 = 225

Nominal GDP decreased and Real GDP decreased

Inflation rate = 225-200/200*100 = 12.5%

-Real GDP is not influenced by price changes, but Nominal GDP is

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Answer 2

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Real versus nominal GDP Consider a simple economy that produces two goods: pens and envelopes. The...

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5. Real versus nominal GDP Consider a simple economy that produces two goods: pens and muffins....

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