Daily Review -- Friday's Lecture

We constructed a GDP Price Deflator.  We began to delve into the Loanable Funds Market.

As a review, can you complete this table:

Here are the definitions I used.  Nominal GDP equals Price times Quantity.  I assumed that only one good was made so the Price was the price level.  Real GDP is equal to current year output at base year prices.  The price index is weighted fixed market basket which is $50 in the base year.  The GDP Price Deflator equals Nominal GDP divided by Real GDP.  Can you complete the table above?

My answers follow.

And the formulas.

Now calculate the inflation rate and Real GDP growth rate.

From the above table, you can observe that GDP is increasing faster than inflation so the economy is growing in real terms.