| Chapter 11 Outline |
| III. NOMINAL GDP, REAL GDP, AND THE GDP DEFLATOR |
| A. The Effect of Prices on GDP |
| 1. Because changes in GDP can be caused by either a change in the quantity of goods and services produced or a change in the price of these goods and services, it is easy to be misled about the output of goods and services in different years. |
| a. To overcome the problem, economists distinguish between nominal GDP and real GDP. |
| | 1. Changes in nominal GDP, GDP measured in current or nominal prices, can be caused by changes in prices or output. |
| | 2. Changes in real GDP, GDP measured in constant prices, can only be caused by a change in output. |
| | a. Real GDP is derived by dMding nominal GDP by the GDP deflator. |
| | 1. The GDP deflator, a price index for all final goods and services, is a weighted average of the prices of all final goods and services produced in the economy. |