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PART 8
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Page 548
THE DATA OF MACROECONOMICS
specific year in the past? By evaluating current production using prices that are
fixed at past levels, real GDP shows how the economy’s overall production of
goods and services changes over time.
To see more precisely how real GDP is constructed, let’s consider an example.
A Numerical Example
nominal GDP
the production of goods and services
valued at current prices
real GDP
the production of goods and services
valued at constant prices
Table 2 shows some data for an economy that produces only two goods—chicken
wings and burgers. The table shows the quantities of the two goods produced and
their prices in the years 2009, 2010, and 2011.
To compute total spending in this economy, we would multiply the quantities of
chicken wings and burgers by their prices. In the year 2009, 100 pieces of chicken
wings are sold at a price of $1 per piece, so expenditure on chicken wings equals
$100. In the same year, 50 burgers are sold for $2 per burger, so expenditure on burgers also equals $100. Total expenditure in the economy—the sum of expenditure on
chicken wings and expenditure on burgers—is $200. This amount, the production of
goods and services valued at current prices, is called nominal GDP.
The table shows the calculation of nominal GDP for these three years. Total
spending rises from $200 in 2009 to $600 in 2010 and then to $1,200 in 2011. Part of
this rise is attributable to the increase in the quantities of chicken wings and burgers,
and part is attributable to the increase in the prices of chicken wings and burgers.
To obtain a measure of the amount produced that is not affected by changes in
prices, we use real GDP, which is the production of goods and services valued at
TABLE 2
Prices and Quantities
Real and Nominal GDP
This table shows how to
calculate real GDP, nominal
GDP, and the GDP deflator for
a hypothetical economy that
produces only chicken wings and
burgers.
Year
Price of
Chicken Wings
Quantity of
Chicken Wings
2009
2010
2011
$1
2
3
100
150
200
Year
Price of Burgers
$2
3
4
Quantity of
Burgers
50
100
150
Calculating Nominal GDP
2009
2010
2011
($1 per chicken wing ⫻ 100 chicken wings) ⫹ ($2 per burger ⫻ 50 burgers) ⫽ $200
($2 per chicken wing ⫻ 150 chicken wings) ⫹ ($3 per burger ⫻ 100 burgers) ⫽ $600
($3 per chicken wing ⫻ 200 chicken wings) ⫹ ($4 per burger ⫻ 150 burgers) ⫽ $1,200
Year
Calculating Real GDP (base year 2001)
2009
2010
2011
($1 per chicken wing⫻ 100 chicken wings) ⫹ ($2 per burger ⫻ 50 burgers) ⫽ $200
($1 per chicken wing ⫻ 150 chicken wings) ⫹ ($2 per burger ⫻ 100 burgers) ⫽ $350
($1 per chicken wing ⫻ 200 chicken wings) ⫹ ($2 per burger ⫻ 150 burgers) ⫽ $500
2009
Year
Calculating the GDP Deflator
2009
2010
2011
($200/$200) ⫻ 100 ⫽ 100
($600/$350) ⫻ 100 ⫽ 171
($1,200/$500) ⫻ 100 ⫽ 240