Topic 1: Nominal vs Real GDP

Question 1

What are two things that could cause a rise in GDP?

Answer 1

1. The economy is producing a larger output of goods and services i.e. a real increase
2. Goods and services are being sold at higher prices (a nominal increase)

Question 2

What is Nominal GDP and how do you calculate it?

Answer 2

• GDP is calculated by taking the output of goods and services produced and multiplying by the prices of those goods and services in that year.
• Changes in nominal GDP can be due to: changes in prices or changes in quantities of output produced
• Calculation: Multiply prices and quantities of all goods and services produced in that year

Question 3

What is Real GDP and how do you calculate it?

Answer 3

• Real GDP measures GDP using the prices of a base year.
• It accounts for fluctuations of prices by using prices of a base year (i.e. holding prices steady). Controls for Inflation
• The only fluctuation, therefore, is the quantity produced.
• Calculate: You take the quantity produced in that year of every good/service but multiply it by the price in the base year

Question 4

How to Calculate Growth rates in GDP?

Answer 4

Calculation: Nominal GDP 2023 - Nominal GDP 2022 x 100
Nominal GDP 2022

Question 5

How to Calculate Real & Nominal GDP per capita?

Answer 5

Per capita looks at per head of population. It is seen as a basic measure of standard of living.
Nominal GDP per capita = Nominal GDP/population
Real GDP per capita = Real GDP/population

Question 6

What is the GDP Deflator and how to calculate it?

Answer 6

The GDP Deflator for subsequent years measures the changes in nominal GDP from the base year that cannot be attributable to changes in real GDP by measuring the current level of prices relative to the level of prices in the base year
We can calculate the GDP Deflator – reflects the prices of goods and services but not the quantities produced
GDP Deflator = Nominal GDP x 100
Real GDP