Question

If nominal GDP in 2005 exceeds nominal GDP in 2004, then the production of output​

Answer 1

Real vs. Nominal GDP

Nominal GDP is defined as GDP that has not been adjusted for prices and has been calculated using

the prices in the year in which the output is produced.

Real GDP is GDP calculated as if prices had remained at the level of some given base year.

There are two methods to solve problems involving real/nominal GDP. One involves using the pricequantity method and the other involves a new formula comparing real/nominal GDP

Revisiting the Quantity Method

Example 1: An economy produces two goods: hot dogs and burgers.

In 2014, 15 hot dogs are produced at a price of $2 each, and 20 burgers at a price of $7 each.

In 2015, 20 hot dogs are produced at a price of $4 each, and 30 burgers at a price of $8 each.

Find the following:

Nominal GDP of 2014:

(15 x 2) + (20 x 7) = 170

Nominal GDP of 2015:

(20 x 4) + (30 x 8) = 320

Real GDP of 2014 using 2014 as base year:

170

Real GDP of 2015 using 2014 as base year:

(20 x 2) + (30 x 7) = 250