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Please explain and neatly... Since I already know ITS definition just show me a good example...

Please explain and neatly...


Since I already know ITS definition just show me a good example product explaining
Real GDP
Vs
Nominal GDP

I know one has inflation and the other doesn’t as well as a base year BUT just can’t seem to comprehend a good example
Help...


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Answer #1

Nominal GDP uses the current prices while Real GDP uses the prices fixed for some reference vear. Real GDP and nominal GDP are equal in magnitude for the base year. Base year is 2016 for the given case. This indicates that real GDP for 2016 is same as nominal GDP of 2016 ear 2016 Price Price Items Fish Berries Quantity 100 50 Quantity 75 65 10 Table 1: Production and Prices Table 1 shows the information related to the prices and quantities of two given commodities. Express the value of nominal GDP in year t as Nominal GDP (t) Price of Fish (t) x Quantity of Fish (t) + Price of Berries (t) x Quantity of Berries (t) Use the expression to find the nominal and real GDP in 2016 Nominal GDP (2016) Price of Fish (2016) x Quantity of Fish (2016) + Price of Berries (2016) x Quantity of Berries (2016) $200 S300 - $500 Thus, nominal GDP in 2016 is $500. Since the base year is considered to be 2016, the real GDP for 2016 is equal to nominal GDP for 2016. Hence, real GDP for 2016 is $500 Find the nominal GDP for 2017 Nominal GDP (2017)-Price of Fish (2017) x Quantity of Fish (2017) + Price of Berries (2017) x Quantity of Berries (2017) $5 x 75 + $10x65 S375+ S650 $1025 Real GDP for 2017 is measured by fixing the prices at 2016 level. Fix the price levels at 2016 levels. Next use the expression for GDP in order to compute the real GDP for 2017 by substituting the values of quantities for 2017: Real GDP (2017) Price of Fish (2016) x Quantity of Fish (2017) + Price of Berries (2016) x Quantity of Berries (2017) $2 × 75 + $6 x 65 $150 + $390 $540 Hence, the real GDP for 2017 is S540. Now compare the nominal and real GDP for 2017 and see that real GDP is quite low. From 2016 to 2017, real GDP which is adjusted for inflation, increases from S500 to S540 But nominal GDP rises from S500 to $1025, mainly because prices are increased for both the goods

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