3.Definition of real GDP:the production of goods and services valued at constant prices. Let's assume that the base year is 2008 Real GDP for2010=($1×100)+($2×50)=$200 Real GDP for2011=(S1×150)+(S2×100)=$350 Real gdp for2012=($1×200)+($2×150)=$500 E.Because real GDP is unaffected by changes in prices over time,changes in real GDP reflect changes in the amount of goods and services produced. F.The GDP Deflator 1.Definition of GDP deflator:a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100. GDP deflator=Nom 2x100 2.Example Calculations GDP Deflator for 2010=($200 $200)x 100=100. GDP Deflator for2011=($600/$350)×100=171. GDP Deflator for2012=($1200/$500)×100=240 G.Case Study:Real GDP over Recent History 1.Figure 2 shows quarterly data on real GDP for the United States since 1965. 2.We can see that real GDP has increased over time 3.We can also see that there are times when real GDP declines.These periods are called recessions. VI.Is GDP a Good Measure of Economic Well-Being? 10 10 3. Definition of real GDP: the production of goods and services valued at constant prices. Let’s assume that the base year is 2008. Real GDP for 2010 = ($1 × 100) + ($2 × 50) = $200. Real GDP for 2011 = ($1 × 150) + ($2 × 100) = $350. Real GDP for 2012 = ($1 × 200) + ($2 × 150) = $500. E. Because real GDP is unaffected by changes in prices over time, changes in real GDP reflect changes in the amount of goods and services produced. F. The GDP Deflator 1. Definition of GDP deflator: a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100. 2. Example Calculations GDP Deflator for 2010 = ($200 / $200) × 100 = 100. GDP Deflator for 2011 = ($600 / $350) × 100 = 171. GDP Deflator for 2012 = ($1200 / $500) × 100 = 240. G. Case Study: Real GDP over Recent History 1. Figure 2 shows quarterly data on real GDP for the United States since 1965. 2. We can see that real GDP has increased over time. 3. We can also see that there are times when real GDP declines. These periods are called recessions. VI. Is GDP a Good Measure of Economic Well-Being?   Nominal GDP GDP deflator 100 Real GDP