Real vs nominal GDP & Business cycle Flashcards
What is real GDP
- adjusted for inflation
- expressed in constant or unchanging dollars
What is nominal GDP
- not adjusted for inflation
- distorts economic activity by including inflation
What is the GDP Deflator formula
Nominal GDP / Real GDP x 100
what doe GDP Deflator calculate
pops out an index # you can compare to the base year
What does GDP deflator look at
all goods and services in the economy, not just a basket of goods
- removes the inflation (or deflates the nominal GDP)
Ex. if the nominal GDP is $300 billion and Real GDP is $250 billion, how much is the GDP deflator
(330/250) x 100 = 120
ex. If the real GDP is $160 bill. and GDP deflator is 120, how much is the nominal GDP
160 x 120 / 100 = 192 bill
What is the nominal GDP formula
(real GDP x GDP Deflator) / 100
What are the 4 Phases of business cycles
- Trough
- Expansion 0r recovery
- Peak
- Recession
Explain Trough
recovery
- when the economy is at its lowest
Explain Expansion or recovery
Explain Peak
when the economy is at it’s highest
Explain recession
called retraction
What is potential GDP
Potential full employment (no cyclical)
Can the economy be in more than one phase
no, can only be in one fo the 3 phases
