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Essay text:
Real GDP is defined as GDP adjusted for price changes (O'Sullivan, Sheffrin, & Perez, 2008). For all of our calculations we will be using the following table.
CD’s Tennis Racquets CD’s Tennis Racquets
2005 90 180 $18 $100
2006 100 190 $20 $110
In this example we will be calculating real GDP using 2005 as a base year. Here is how the calculations break down.
Nominal GDP
2005 90 X $18 = $1,620 180 X $100 = 18,000, $1,620 + $18,000 = $19,620
2006 100 X $20 = $2,000 190 X $110 = $20,900, $2,000 +$20,900 = $22,900
2006 at 2005 prices real GDP
100 X $18 = $1,800 190 x $100 = $19,000, $1,800+$19,000 = $20,800
($20,800 -$19,620) /$19,620 = 0...
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