Consider a simple economy that produces two goods: pens and envelopes. The following table shows the prices and quantities of the goods over a three-year period.
Year Pens
Envelopes
Price Quantity Price Quantity
(Dollars per pen) (Number of pens) (Dollars per envelope) (Number of envelopes)
2014 1 125 1 200
2015 2 170 4 230
2016 4 150 4 170
Use the information from the preceding table to fill in the following table.
Year Nominal GDP Real GDP GDP Deflator
(Dollars) (Base year 2014, dollars)
2014 2015 2016 From 2015 to 2016, nominal GDP ___________, and real GDP ____________.
The inflation rate in 2016 was ______________.
Why is real GDP a more accurate measure of an economy's production than nominal GDP?
a) Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.
b) Real GDP is not influenced by price changes, but nominal GDP is.
c) Real GDP does not include the value of intermediate goods and services, but nominal GDP does.
