Nominal GDP- Value of output produced in current prices.
P*Q. Price x quantity
Can increase from year to year if either output or price increase
Real GDP- Value of output, produced in constant or based year prices. Adjusted for inflation
Price(Old) X Quantity
Can increase from year to year, only if output increases.
Price Index- measures inflation by tracking changes in the price of a market basket of goods, compared to the base year.
GDP deflator- Price index, that is used to adjust from nominal to real GDP.
Base year, the GDP deflator will equal 100, for years after the base years the GDP deflator will be greater than 100
For years before the base year, GDP deflator will be less than 100.
Inflation Rate- New GDP deflator- Old GDP deflator/ Old GDP deflator X 100.
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