5. 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)

2018 2 125 3 155

2019 4 135 3 210

2020 2 125 3 165

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

Year

Nominal GDP

Real GDP

GDP Deflator

(Dollars)

(Base year 2018, dollars)

2018

2019

2020

From 2019 to 2020, nominal GDP, and real GDP.

The inflation rate in 2020 was.

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

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

Real GDP does not include the value of intermediate goods and services, but nominal GDP does.

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