1. Module Interpreting Real Gross Domestic Product KRUGMAN'S MACROECONOMICS for AP* 11 Margaret Ray and David Anderson

2. What you will learn in this Module : The difference between real GDP and nominal GDP Why real GDP is the appropriate measure of real economic activity

3. What GDP Tells Us Economic Size Comparison Relative size of country indicates relative size of Gross Domestic Product

4. Inflation’s effect on GDP- can overstate value Aggregate Output-year to year comparison w/o inflation indicates “true” growth Real GDP: A Measure of Aggregate Output

5. Calculating Real GDP

6. Real World Example YearNominal GDPReal GDP (in 2005 dollars) 2001$10,286$11,347 2005$12,683 2009$14,259$12,989 Since 2005 is the base year, nominal and real are the same. 2001, real is higher than nominal, indicating prices were higher in ’05 compared to 2001. 2009, real is lower than nominal, indicating prices were lower in ‘05 compared to 2009.

7. UN Development Rankings 2004 The top 15… 1 Norway 2 Sweden 3 Australia 4 Canada 5 Netherlands 6 Belgium 7 Iceland 8 United States 9 Japan 10 Ireland 11 Switzerland 12 United Kingdom 13 Finland 14 Austria 15 Luxembourg The bottom 15… 163 Côte d’Ivoire 164 Zambia 165 Malawi 166 Angola 167 Chad 168 Dem. Rep. of the Congo 169 Central African Republic 170 Ethiopia 171 Mozambique 172 Guinea-Bissau 173 Burundi 174 Mali 175 Burkina Faso 176 Niger 177 Sierra Leone

8. What Real GDP Doesn’t Measure Real GDP v. GDP per capita Living Standards Limitations of Real GDP per capita Chain linking-averages Real GDP using early and late year bases

9. Try This Problem WidgetsGizmosThingys YearPrice Qty 2006$100 1$10 8$5 4 2007$110 1$11 10$4 5 Calculate the nominal GDP for 2006. Calculate the nominal GDP for 2007. Compute the percentage change in nominal GDP from 2006 to 2007. Using 2006 as the base year, calculate the real GDP for 2007. Compute the percentage change in real GDP from 2006 to 2007.