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Question I. 60 pts. Testing your understanding of Nominal and Real GDP
I.1. 10 pts. Write down definition of GDP and explain it.
I.1. 10 pts. Explain Nominal GDP.
I.2. 40 pts. Explain Real GDP.
I.2.1. 10 pts. Why an artificial indicator of Real GDP is introduced?
I.2.2. 10 pts. What is the meaning of a ‘base year’ in computations of the GDP
deflator? (We will discuss the meaning of the GDP deflator.)
I.2.3. 10 pts. Provide an illustrative example of using the ‘base year price’ in
constructing Real GDP.
I.2.4. 10 pts. Draw an illustrative graph that contains hypothetical growth curves
of Nominal and Real GDP. Explain this graph.
(We will discuss question II.)
Question II. 30 pts. Explain the logic of relations between Nominal GDP, deflator of GDP,
and Real GDP.
II.1. 20 pts. Explain the logic of transitioning from Nominal GDP to Real GDP
when the GDP deflator is given.
II.2. 10 pts. Explain the relations between Nominal GDP, deflator of GDP, and
Real GDP.
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