Real vs. Nominal GDP Each Yrs P / Base Yr P P X Q Nominal / Price Index Price Nominal Real (p2- p1) ,p, m Q E Index E E Inflation Rate 1 2,500 $3 0.38 $7,500 $20,000 2 2,800 $8 1.00 $22,400 $22,400 1.67 Year 1 a. 2 3 2,400 $13 1.63 $31,200 $19,200 0.63 Year2&3 4 2,200 $18 2.25 $39,600 $17,600 0.38 Year3&4 5 2,000 $23 2.88 $46,000 $16,000 0.28 Year4&5 Complete the table using year 2 as the base year. Why is Real GDP a better indicator as to changes in a countries output than Nominal GDP? Real GDP is a better indicator of growth because it is adjusted so that it is not affected by year to year price changes (inflation). Nominal GDP is skewed by that. What is the inflation rate between: See Chart Above