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. Apples Muffins Use the information from the preceding table to fill in the following table. From 2015 to 2016, nominal GDP (decreased, increased) , and real GDP (decreased, increased) . The inflation rate in 2016 was (-12.5%, 0.1%, 12.5%, 88.9%, 112.5%) . Why is real GDP a more accurate measure of an economy\'s production than nominal GDP? Real GDP does not include the value of intermediate goods and services, but nominal GDP does. Real GDP includes the value of exports, but nominal GDP does not. Real GDP is not influenced by price changes, but nominal GDP is. Year Apples MuffinsPriceQuantityPriceQuantity(Dollars per apple)(Number of apples)(Dollars per muffin)(Number of muffins) 201411102150 201521554215 201631204180 Solution 2014 Base Year 2015 2016 Quantity Price Value Quantity Price Value Quantity Price Value Apples 110 1 110 155 2 310 120 3 360 Muffins 150 2 300 215 4 860 180 4 720 Nominal GDP 410 1170 1080 2015 2016 Quantity Price of 2014 Value Quantity Price Value 155 1 155 120 1 120 215 2 430 180 2 360 REAL GDP 585 480 Year Nominal GDP Real GDP GDP Deflator (Dollars) (Base year 2014, dollars) 2014 410 410 100 2015 1170 585 200 2016 1080 480 225 From 2015 to 2016, nominal GDP decreased, and real GDP decreased. The inflation rate in 2016 was 12.5% Inflation = 225 – 200 / 200 * 100 = 12.5% Why is real GDP a more accurate measure of an economy\'s production than nominal GDP? Real GDP is not influenced by price changes, but nominal GDP is. 2014 Base Year 2015 2016 Quantity Price Value Quantity Price Value Quantity Price Value Apples 110 1 110 155 2 310 120 3 360 Muffins 150 2 300 215 4 860 180 4 720 Nominal GDP 410 1170 1080.

1. 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.
Apples
Muffins
Use the information from the preceding table to fill in the following table.
From 2015 to 2016, nominal GDP (decreased, increased) , and real GDP (decreased, increased) .
The inflation rate in 2016 was (-12.5%, 0.1%, 12.5%, 88.9%, 112.5%) .
Why is real GDP a more accurate measure of an economy's production than nominal GDP?
Real GDP does not include the value of intermediate goods and services, but nominal GDP does.
Real GDP includes the value of exports, but nominal GDP does not.
Real GDP is not influenced by price changes, but nominal GDP is. Year
Apples
MuffinsPriceQuantityPriceQuantity(Dollars per apple)(Number of apples)(Dollars per
muffin)(Number of muffins) 201411102150 201521554215 201631204180
Solution
2014 Base Year
2015
2016
Quantity
Price
Value
Quantity
Price
Value
Quantity
Price
Value
Apples
110
1
110
155

2. 2
310
120
3
360
Muffins
150
2
300
215
4
860
180
4
720
Nominal GDP
410
1170
1080
2015
2016
Quantity
Price of 2014
Value
Quantity
Price
Value
155
1
155
120
1
120
215
2
430

3. 180
2
360
REAL GDP
585
480
Year
Nominal GDP
Real GDP
GDP Deflator
(Dollars)
(Base year 2014, dollars)
2014
410
410
100
2015
1170
585
200
2016
1080
480
225
From 2015 to 2016, nominal GDP decreased, and real GDP decreased.
The inflation rate in 2016 was 12.5%
Inflation = 225 – 200 / 200 * 100 = 12.5%
Why is real GDP a more accurate measure of an economy's production than nominal GDP?
Real GDP is not influenced by price changes, but nominal GDP is.
2014 Base Year
2015
2016
Quantity
Price
Value
Quantity

4. Price
Value
Quantity
Price
Value
Apples
110
1
110
155
2
310
120
3
360
Muffins
150
2
300
215
4
860
180
4
720
Nominal GDP
410
1170
1080