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Real GDP & Aggregate Output. Chapter 7-2. Comparing GDP Across Time. GDP can grow due to: 1) Economy producing more 2) Prices having risen. Calculating GDP and Real GDP in a Simple Economy. Nominal GDP.

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Real GDP & Aggregate Output

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Presentation Transcript
comparing gdp across time
Comparing GDP Across Time

GDP can grow due to:

1) Economy producing more

2) Prices having risen

nominal gdp
Nominal GDP
  • nominal GDP, is the value of all final output produced in an economy during a given year, calculated using the prices current in the year which the output is produced
keeping it real
Comparing output over time is best done with real output which is nominal output adjusted for inflation

Real GDP is the value of the final goods and services produced calculated using the prices of some base year

Keeping it Real
nominal vs real
Nominal Vs. Real
  • Nominal GDP is GDP calculated at existing prices.
  • Real GDP is nominal GDP adjusted for inflation.
  • Real GDP is important to society because it measures what is really produced
laugher curve
Three econometricians went out hunting, and came across a large deer.

The first econometrician fired, but missed, by a yard to the left.

The second econometrician fired, but also missed, by a yard to the right.


The third econometrician didn't fire, but shouted in triumph, "We got it! We got it!"

Laugher Curve
chained dollars
Chained Dollars
  • Depending on the year chosen as the base year Real GDP can differ.
  • Chain-linking split the difference between using early base year and late base year.(similar to our third econometrician)
gdp per capita
GDP Per Capita
  • GDP Per Capital is GDP divided by the size of the population: it is equal to the average GDP per person.
  • Not an end in itself does not address how a country uses that output to affect living standards.
gdp measures market activity not welfare
GDP Measures Market Activity, Not Welfare
  • GDP does not measure happiness, nor does it measure economic welfare.
  • Welfare is a complicated idea, very difficult to measure.
gross progress indicator
Gross Progress Indicator
  • The gross progress indicator (GPI) is an alternative measure to GDP.
  • The GPI tries to measure pollution, education, health concerns, as well as GDP.
      • GPI is not in the text but the text does discuss this idea!