Unit 2 - Gross Domestic Product Pt.3

Nominal GDP:
- Value of output produced in current prices
- Adjusted to inflation
- Can increase from year to year if output price increase

+Formula: Price (current year) x Quantity (current year)

Real GDP:
- Value of output produced in constant base year price
- Can only increase from year to year if output increase

+Formula: Price (base year) x Quantity (current year)

Market Basket of Goods: A relatively fixed set of consumer products and services valued and used on an annual basis to track inflation in a specific market or country.

Price Index: Measures inflation by tracking changes in the market basket of goods compare that with the base year.

+Formula:
(Price of market basket of goods (current year)/Price of market basket of goods base year) x 100

GDP deflation: Price index used to adjust form nominal to real GDP

+Formula:
(Nominal GDP/Real GDP) x 100

Inflation Rate formula:
[(New deflator - old deflator) / old deflator] x 100

*In base year, GDP deflator will be 100
  In years after base year, GDP deflator will be > 100
  In years before base year, GDP deflator is < 100