Unit 2- February 3

• Nominal GDP- the value of output produced in current prices
• it can increase from year to year if either output or prize increases
  
• Real GDP- the value of output on constant base year prices
• it adjust for inflation
• it only increases if output increases
  
• formula is P * Q
• use real GDP to measure economic growth
• in the base year real GDP and Nominal GDP are equal
• in years after the base year nominal GDP will exced real GDP
• in years before the base year, real GDP will exceed nominal GDP
• GDP Deflator- a price index used to adjust from nominal to real GDP
• nominal GDP ➗ Real GDP ✕ 100
• in the base year GDP Deflator will always equal 100
• for years after the base year GDP deflator is greater than 100
• for years before the base year GDP deflator is less than 100
  
• Consumer price index( CPI )- it measures inflation by tracking changes in the price of a markets basket of goods
• Price of market basket in the current year ➗Price of market basket in the base year ✕ 100