chapter 6.2 part 1 Flashcards
What is the distinction between nominal and real measurements?
Refers to whether or not inflation has distorted a given statistic.
What is difficult to do if you do not know the inflation rate?
It is difficult to know if the rise in GDP is due mainly to a rise in overall price levels or to a rise in quantities of goods produced.
What is the nominal value?
We measure the statistic in terms of actual prices that exist at the time.
What is the real value?
The statistic of the nominal value after it has been adjusted for inflation.
Is the real or nominal value more important?
Real.
How do we find out how much something has risen by a factor of?
Divide the newer year with the older year.
How do we define nominal GDP?
The quantity of every final good and service produced multiplied by the price at which it was sold summed up for all goods and services.
What do we need to do to see how much production has actually increased?
We need to extract the effects of higher prices on nominal GDP. We can easily accomplish this using the GDP deflator.
What is GDP deflator?
A price index measuring the average prices of all final goods and services included in the economy.
If there is a higher price change from a year, what does that mean?
That there is inflation.
What are the two reasons nominal GDP can rise?
An increase in output and/or an increase in prices.
What does price index tell us?
How much more inflation there is.
The adjustment of nominal value to real value is easy if you?
If you understand that nominal measurements are in value terms where value = price * quantity or Nominal GDP = GDP deflator * Real GDP.
At the micro level, real income is?
Nominal revenue/price.
