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2 . Real versus nominal GDP Consider a simple economy that produces two goods: pencils and muffins. The following table shows the prices and quantities

2 . Real versus nominal GDP

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

YearPencils

Muffins

PriceQuantityPriceQuantity(Dollars per pencil)(Number of pencils)(Dollars per muffin)(Number of muffins)201611452195201721654225201831104165

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

YearNominal GDPReal GDPGDP Deflator(Dollars)(Base year 2016, dollars)201620172018

From 2017 to 2018, nominal GDP , and real GDP .

The inflation rate in 2018 was .

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

Real GDP includes the value of exports, but nominal GDP does not.

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

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

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