2.4 Real vs. Nominal GDP

• Unlike Real GDP, Nominal GDP does not adjust for inflation
• What does Real GDP measure?

  Total value adjusted for inflation
• Real GDP is calculated by adjusting Nominal GDP for inflation
• Nominal GDP provides an unadjusted view of the economy's output based on current prices
• Real GDP adjusts for inflation to provide a more accurate measure of changes in the volume of goods and services produced over time
• Nominal GDP reflects the impact of price changes.


  True
• Which type of GDP is the primary indicator for tracking economic expansion or contraction over time?

  Real GDP
• What does Real GDP reveal by adjusting for inflation?

  True growth of the economy
• Real GDP is adjusted for inflation using a base year.
• Nominal GDP reflects the impact of inflation
• Nominal GDP enables policymakers to gauge total spending
• Real GDP is a better indicator of productivity improvements because it isolates changes in output from changes in prices
• Real GDP is calculated by dividing nominal GDP by the GDP deflator
• What does Nominal GDP measure?

  Total value at current prices
• Real GDP is the preferred metric for analyzing economic performance over time.

  True
• How is Nominal GDP calculated?

  Sum of goods at current prices
• What is the primary difference between Nominal and Real GDP?

  Inflation adjustment
• Nominal GDP measures economic growth accurately over time.

  False
• Match the GDP type with its primary use:

  Nominal GDP ↔️ Comparing total expenditure

  Real GDP ↔️ Measuring economic growth
• What does Nominal GDP allow policymakers and analysts to gauge?

  Total spending on goods and services
• Real GDP eliminates the impact of price changes, allowing accurate comparisons of economic output across different periods
• How is Nominal GDP different from Real GDP in terms of price adjustments?

  Nominal GDP is unadjusted
• What does nominal GDP measure?

  Goods and services at current prices
• What are the primary uses of nominal GDP?

  Comparing economy size and assessing total expenditure
• Real GDP allows for meaningful comparisons of economic performance between different time periods or countries.


  True
• The GDP deflator measures the change in prices of all goods and services included in GDP.

  True
• Adjusting nominal GDP for inflation provides a true measure of economic output.


  True
• Nominal GDP is useful for comparing the overall size of an economy at different points in time.


  True
• Real GDP removes the impact of price changes to provide a more accurate measure of economic output
• Match the GDP metric with its definition:

  Nominal GDP ↔️ Uses current market prices

  Real GDP ↔️ Adjusts for inflation
• If nominal GDP increases by 5% and inflation is 2%, the real GDP growth is 3%.


  True
• What is Nominal GDP calculated using?

  Current market prices
• How is Real GDP adjusted for inflation?

  Using a base year
• Nominal GDP helps assess the overall scale of an economy at different times without accounting for inflation
• Match the term with its definition:

  Nominal GDP ↔️ Value at current prices

  Real GDP ↔️ Value adjusted for inflation
• What is the Real GDP growth if Nominal GDP grows by 5% and inflation is 2%?

  3%
• If nominal GDP increases by 7% and inflation is 3%, real GDP growth is 4%.


  True
• Why is real GDP a better measure of economic growth than nominal GDP?

  It adjusts for inflation
• What is the key difference between nominal GDP and real GDP?

  Inflation adjustment
• What formula is used to calculate real GDP using the GDP deflator?

  \frac{Nominal GDP}{GDP deflator}</latex>