Question 1

What is the problem with nominal GDP?

Accepted Answer

We can't compare nominal GDPs because they don't account for changes in prices (inflation)

Question 2

What is real GDP?

Accepted Answer

An adjusted version of nominal GDP that takes into account changes in prices over time (inflation)

Question 3

Why is real GDP useful?

Accepted Answer

It accounts for inflation, so it can measure economic growth and is often used to compare economic performance over time

Question 4

What is the difference between Nominal GDP and Real GDP?

Accepted Answer

Nominal GDP does not take into account changes in prices over time (inflation), while real GDP does

Question 5

What is the purpose of calculating Real GDP?

Accepted Answer

It allows for a more accurate comparison of economic performance over time, as it takes into account changes in the purchasing power of money

Question 6

What is the GDP deflator?

Accepted Answer

A measure of changes in the price of goods/services produced in an economy

(helps identify how much prices have inflated over a specific time period)

Question 7

Why is the GDP deflator useful?

Accepted Answer

It helps identify how much prices have inflated over a specific time period

We can use it to calculate real GDP from nominal GDP

Question 8

What is the equation for GDP deflator?

Accepted Answer

Question 9

What is the formula for calculating real GDP from  nominal GDP?

Accepted Answer

2.6 Real vs Nominal GDP, AP Macroeconomics Flashcards