- A value of output produced in current prices
- Formula: P x Q =
- Increase from year to year if either output or price increase
Real GDP-
- The value of output produced in constant or base year prices
- Adjusted for inflation
- Formula: Also P x Q=
- Can increase from year to year only if output increases
- Measures inflation by tracking changes in the price of a market basket of goods compared to the base year
- Formula: price of market basket of goods in current year / price of market basket of goods in base year x 100 =
- Also a price index used to adjust from nominal to real GDP
- In base year, GDP Deflator will equal 100
- For years after the base year, GDP deflator will be greater than 100
- For years before the base year, GDP Deflator will be less than 100
- Formula: nominal GDP / real GDP x 100 =
- ((New GDP deflator - old GDP deflator) / (old GDP deflator)) x 100=
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ReplyDeleteTo answer the question you posted on my blog, there is no way for a business to fully know the effects of unanticipated inflation until it happens to them, in which case they feel the effects of it firsthand. However, one can predict the effects of unanticipated inflation using previous data or trends from businesses who have experienced unanticipated inflation and have been hurt or helped by it. Now, for a comment about your blog - you presented the topic in a thorough manner and even provided a chart of a price index. You could add examples for GDP deflator and inflation rate in order to present those concepts more thoroughly.
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