If all the calculations are on market value, wouldn·t inflation distort the picture?

‡ Undoubtedly, inflation would give a distorted figure of GDP if we didn t adjust it. ‡ Nominal GDP: measures the value of output in a given period in the price of that period. ‡ Real GDP : It measures the change in physical output in the economy between different time periods by valuing all goods and services produced in the two periods at the same price

GDP Deflator= nominal GDP real GDP .Cont« ‡ To offset the effect of all form of inflation in the economy. which is than used to calculate the real increase in GDP over a particular base period. a GDP deflator is calculated.

3 10 90 80 60 150 110 130 = 60x2 + 150x8 +110x80 + 130x70 = 19220 Nominal GDP= 60x3 + 150x10 + 110x90 + 130x80= 21980 GDP deflator= 21980 19220 = 1.Goods/ Services X1 X2 X3 X4 Real GDP Base year Price Qty. 2 8 80 70 40 90 180 120 Current Year Price Qty.144 .

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