Finance and the Economy · Seminar 8 · Macroeconomic factors

The land of milk and honey

Nominal GDP values output at current prices; real GDP values it at base-year (2018) prices. Change what happens in 2020 and see which measure moves. Only real GDP tells you whether more was actually produced. Questions 2 and 3, from Business Economics (Mankiw, Taylor & Ashwin, ch. 20).

Pick a scenario or set 2020 prices and quantities. 2018 and 2019 are fixed from the question.
€0.50€4
€1€8
100300
50150

Nominal GDP 2020

Real GDP 2020

Nominal growth 2019–20

Real growth 2019–20

YearMilk priceMilk litresHoney priceHoney litresNominal GDPReal GDP (2018 prices)

Why economists prefer real GDP. It strips out price changes, so a rise means more goods and services were produced. A rise in nominal GDP could be either more output or higher prices, and you cannot tell which.

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