Introduction to Macroeconomics

Question 1

Nominal GDP

Answer 1

Output of g/s measured at current market price without adjusting for inflation
-INCLUDES INFLATION

Question 2

Real GDP

Answer 2

Output of g/s measured at constant price, adjusted for inflation
R = N/GDP Deflator
- WITHOUT INFLATION

Question 3

GDP Deflator

Answer 3

Nominal GDP/Real GDP X 100
Measure of price level indicating inflation/deflation over time
- excludes imports

Question 4

CPI

Answer 4

Consumer Price Index measures inflation

Question 5

Inflation Rate

Answer 5

Change in P/P X 100(%)

Question 6

Inflation

Answer 6

Sustained increase in the average price levels of g/s, measured using consumer price index (CPI)
Cons:
1. Inflations reduces the purchasing power of money
2. Represents increase in firms costs
3. Creates uncertainty for firms and makes business planning difficult especially when volatile