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AP Economics

Learn the difference between real GDP and nominal GDP, why real GDP is vital, and what GDP tells us. Explore how inflation affects GDP and the limitations of real GDP as a measure of economic activity. Discover what real GDP doesn't account for.

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AP Economics

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  1. AP Economics Mr. Bernstein Module 11: Interpreting Real Gross Domestic Product January 2019

  2. AP EconomicsMr. Bernstein Interpreting Real Gross Domestic Product • Objectives • Learn the difference between real GDP and nominal GDP • Understand why real GDP is the appropriate measure of real economic activity

  3. AP EconomicsMr. Bernstein What Does GDP Tell Us? • The value of current production at current price levels • Is a gauge of the total size of an economy • Is used to compare economies • GDP can be misleading – ie 1996 dollars are worth less than today’s dollars

  4. AP EconomicsMr. Bernstein Real GDP: A Measure of Aggregate Output • Inflation’s effect on GDP • GDP = P * Q. So if P rises, so does GDP, even if Q does not • So we measure Real GDP • Use a baseline point in time, ie “in 1996 dollars” • Aka Constant Dollar GDP

  5. AP EconomicsMr. Bernstein Real GDP: A Measure of Aggregate Output

  6. AP EconomicsMr. Bernstein What Real GDP Doesn’t Measure • Positive statistics…not normative • Does not include • Underground economy • DIY • Sale of used goods • Volunteerism • Value of Leisure • Does not measure a nation’s self-esteem or sense of happiness

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