AP Economics
Mr. Bernstein
Module 11:
Interpreting Real Gross Domestic Product
January 22, 2015
AP Economics
Mr. 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
2
AP Economics
Mr. 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
3
AP Economics
Mr. 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
4
AP Economics
Mr. Bernstein
Real GDP: A Measure of Aggregate Output
5
AP Economics
Mr. 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
6