Name__________________

Principles of Macroeconomics
ECON 202 Prof. Curott
The Measurement of Real and Nominal GDP
1. Below is some made-up data for a country that produces only 2 products, milk and honey:
Market
Quantity Market Nominal Real
GDP
Economic Inflation
Price Quantity
Price
Value
of
Value GDP
GDP Deflator Growth
Year of
of Milk
of
of Milk
Honey of
Milk (quarts)
Honey
(quarts) Honey
2006 $1 100
$2
50
------------ ----------2007 $1 200
$2
100
2008 $2 200
$4
100
a. Compute nominal GDP, real GDP and the GDP deflator for each year using 2006 as the base year.
b. Compute the percentage change in nominal GDP, real GDP and the GDP deflator in 2007 and 2008
from the preceding year. For each year, identify the variable that does not change.
c. Did economic well-being rise more in 2007 or 2008? Explain.
2. Below is some made-up data for a country that produces only 2 products, baseballs and gloves:
Price
Price Quantity Nominal
Real GDP GDP
Economic Inflation
Quantity
Year of
of
of
GDP
Deflator Growth
of Balls
Balls
Gloves Gloves
2012 $4
1,000
$15
100
------------- -----------2013 $4
1,000
$20
200
2014 $5
1,200
$25
200
3. Below are some made-up data on an economys GDP (the price and quantity of each good
produced is not given in this case, just :
Year
1
2
3

Nominal GDP
$120
$150

Real GDP
$100

GDP Deflator
100
120

$125

a. Fill in the blanks on the table

b. What year is the base year? How can you tell?
c. From year 1 to year 2, did real output rise or did prices rise?
d. From year 2 to year 3, did real output rise or did prices rise?

1.
Year
2002
2003
2004
2005
2006

2.
Nominal
GDP
(million
of
Dollars)
10,980,2
00
11,512,2
00
12,277,0
00
13,095,4
00
13,857,9
00
14,480,3
00
14,720,3
00
14,417,9
00

3. Real
GDP
(millions
of 2009
dollars)
12,909,7
00
13,270,0
00
13,774,0
00
14,235,6
00

4. GDP
Deflator
(index
2009=1
00)

5. GDP
Deflator
Inflation
Rate
------------85.06
-86.75

1.99%
2.74%
3.21%

94.82

3.08%

97.34
14,833,6
2008
00
99.21
14,417,9
2009
00
100
14,779,4
2010
00
101.22
15,052,4
2011
00
103.2
16,244,6 15,470,7
2012
00
00
105.01
16,797,5 15,759,0
2013
00
00
106.59
answers, use the following formula:

2.66%

2007

Using the GDP Deflator to

understand the US
economy over the last
decade (data from
www.bea.gov)

1.96%
1.75%

4. Use the information

provided to fill in the missing
entries for Nominal GDP, Real
GDP, and the GDP Deflator for
each year. To find the

nominal GDP
GDP price deflator

x 100
real GDP

5 a) Create a time series graph that plots both nominal and real GDP for each year
on the same graph. Make sure to label your graph. The year is measured along the
horizontal axis and both nominal and real GDP are measured along the vertical axis
in dollars. Indicate which line represents nominal GDP, and which line represents
real GDP.
b) What is a base year?
c) Which year is the base year, and how can you tell? (Hint: what is true about
Nominal GDP, Real GDP, and the price level in the base year?)
6 a) Calculate the inflation rates for the years 2008 through 2013 and enter them
into the table. To calculate the inflation rate for each year, find the percentage
change in the price index between that year and the previous year:

b) In what years did the inflation rate fall by the largest amount? Were these years
of economic growth or economic recession? Please note that this is not a
coincidence, and that a fall in the price level and in real GDP usually go hand in
hand.