http://www.slatev.com
/video/what-exactlygdp/
1.
2.
What is the difference
between real GDP and
nominal GDP?
Why is real GDP the
appropriate measure of real
economic activity?
VE4 Video:
Real and
Nominal GDP
A measure of the size of the e________
2. Comparison scale to compare e___________
of different c____________
3. Current dollar GDP = 2012 p_____________
with 2012 p_________
4. Issue: Can prices fluctuate? Will that
influence GDP?
1.
5.
What can be done to get accurate
measurements?
A measure of the size of the economy
2. Comparison scale to compare economies
of different countries
3. Current dollar GDP = 2012 production
with 2012 prices
4. Issue: Can prices fluctuate? Will that
influence GDP?
1.
5.
What can be done to get accurate
measurements? Take out the distortion
Nominal GDP is measured in current
prices, which may include i________or
d___________.
2. How does inflation distort GDP?
1.
3. Real GDP is measured in c_________
p_________ or an a________ to give a
more accurate or un-skewed reflection of
what is really being produced in the
economy.
Nominal GDP is measured in current
prices, which may include inflation or
deflation.
2. How does inflation distort GDP?
1.

If prices go up and quantity does not, GDP will
increase because it is a dollar amount. Production
has not increased so this is misleading; the economy
has not truly grown. To adjust for changing prices,
Real GDP is calculated with the value of current
production using prices from a fixed point in time.
This fixed point in time is called the base year.
3. Real GDP is measured in constant prices
or an average to give a more accurate or unskewed reflection of what is really being
produced in the economy.
1. Calculate the nominal GDP for both years. By how much as the economy grown according to
nominal GDP?
2. Was the increase due to an increase in output?
3. What caused the increase?
4. Calculate real GDP for 2008 using 2008 output & 2007 prices. By how much did the economy
grow?
1. Calculate the nominal GDP for both years. By how much as the economy grown according to
nominal GDP? Nominal GDP rose by $8250 or 59% . Holy cow!!
2. Was the large increase due to an increase in output? NO, output in 2008 was miniscule
3. What caused the increase? Increase in prices from 2007 to 2008
4. Calculate real GDP for 2008 using 2008 output & 2007 prices. By how much did the economy
grow? $15250 - $14000 = $1250 or 9%, NOT $8250
Just a statistical measure
 Are these measures positive or
normative?
 GDP cannot measure everything: self
esteem, overall happiness, leisure
activities
 GDP per Capita: GDP divided by the size
of the population (average GDP per
person)

http://www.tradingeconomics.com/united-states/gdp-growth
http://www.tradingeconomics.com/gdp-growth-rates-list-by-country
Non-Market
Activities
Notes
Illustration
Negative
Externalities
Underground
Economy
Quality Of Life
Notes
Illustration
Non-Market
Activities
Negative
Externalities
Underground
Economy
Quality Of Life
GDP does not
measure goods and
services that people
make or do
themselves, such as
babysitting, mowing
lawns, or cooking
dinner.
Unintended
economic side
effects, such as
pollution, have a
monetary value
that is often not
reflected in GDP.
There is a TON of
economic activity
that is never
reported to the
government.
Examples include
black market (illegal)
transactions and
"under the table"
wages.
GDP is used as a
standard of living
measurement, but
there are factors
NOT covered by it.
These include
quality of life, leisure
time, pleasant
surroundings, &
personal safety.
Time off to coach your child’s soccer
game.
 Cleaning up after a natural disaster
(hurricane Sandy)
 Reading a book.
 Raking your own leaves rather than hiring
out.
 Paying for divorce.
 Leave your job to raise children.

Complete Module 11 questions p. 116-117
 Read Module 12
 Strive for a 5 Module 11 vocab & fill in the
blank
