#AP Macroeconomics: Nominal vs. Real GDP & The GDP Deflator 🚀

Hey there, future AP Macro superstar! Let's break down nominal GDP, real GDP, and the GDP deflator. Think of this as your pre-exam cheat sheet—everything you need, nothing you don't. Let's get started!

#Why Nominal GDP Isn't Enough

#The Problem with Nominal GDP

• Nominal GDP: The total value of goods and services produced using current prices.
• The Issue: It doesn't account for price changes (inflation). A rise in nominal GDP could just mean prices went up, not that the economy actually produced more. 😩
• Example: If a country's nominal GDP doubles, it could be because production doubled or because prices doubled. We need a better way to measure actual economic growth.

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• Real GDP (rGDP): A measure of economic growth that adjusts for inflation.
• How it Works: It uses base year prices to calculate the value of goods and services. This way, we can see if the economy is really growing, not just experiencing price increases.
• Why it Matters: rGDP gives us a more accurate picture of economic performance over time.

#Calculating Real and Nominal GDP

#The Steps

1. Nominal GDP: Multiply the quantity of each good produced by its current year price.
2. Real GDP: Multiply the quantity of each good produced by its base year price.

#Example #1: United States 🇺🇸

#2018 (Base Year)

#2019

• 2018 Nominal GDP: 4,000,000 (Steel) + 600...