ECON302 Lecture Notes - Lecture 2: Income Approach, National Accounts, Metar

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sangriagiraffe866

18 May 2016

School

University of Waterloo

Department

Economics

Course

ECON302

Professor

Nafeez Fatima

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Document Summary

Nominal gdp is a flow concept that measures the dollar value of all the goods and services that an economy produces during a specified period. For most goods and services, the dollar value is determined by the market price of the item. For goods and services not exchanged on markets (notably government production), the nominal cost of production is entered: assumes government employees experience no changes over time in their productivity. Owner-occupied housing enters in accordance with an estimate of the imputed rental income. The nominal gdp can change if the overall price level changes in the economy. For government-owned property, the imputed rental income is assumed to equal estimated depreciation. Economists solve the problem of changing price levels by constructing measures of real gdp. Real gdp values output at constant prices of a base year. Since prices do not vary, there is a reasonable measure of changes over time in the overall level of production.

Related Questions

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

(i) Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.

(ii) Real GDP is not influenced by price changes, but nominal GDP is.

(iii) 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.

silvermule348

7. The difference between nominal GDP and real GDP is that nominal GDP:

	A.	measures a country's production of final goods and services at current market prices, whereas real GDP measures a country's production of final goods and services at the same prices in all years.
	B.	is measured in dollar terms, whereas real GDP is measured in terms of numbers of goods and services produced
	C.	measures the total value of only final goods and services, whereas real GDP measures the value of all goods and services, both intermediate and final
	D.	measures a country's production of final goods and services at fixed prices, whereas real GDP measures a country's production of all final goods and services at current market prices

carminekoala560

Real versus nominal GDP

Consider a simple economy that produces two goods: apples and muffins. The following table shows the prices and quantities of the goods over a three-year period.

Year	Apples		Muffins
	Price	Quantity	Price	Quantity
	(Dollars per apple)	(Number of apples)	(Dollars per muffin)	(Number of muffins)
2008	1	150	2	160
2009	2	135	4	230
2010	3	110	4	165

Use the information from the previous table to fill in the following table.

Year	Nominal GDP	Real GDP
Year	(Dollars)	(The base year 2008, dollars)
2008
2009
2010

1. From 2009 to 2010, nominal GDP (decreased or increased), and real GDP (decreased or increased).

2. 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. Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.

C. Real GDP is not influenced by price changes, but nominal GDP is.

magentamarten240

ECON302 Lecture Notes - Lecture 2: Income Approach, National Accounts, Metar

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