And P1, so if I want to figure out the GDP in year one, I would have the price of apples in year one-- that's the only good or service, just to simplify things-- times the quantity of apples in year one. And then this right over here, the area of this green rectangle, would GDP in year one. And then GDP in year two would be the price in year two. The price in year two times the quantity in year two-- we'll assume some growth as occurred-- times the quantity in year two.
And so GDP in year two would be the area of this entire rectangle. And if we want to find the difference between GDP in year two and GDP in year one, it would be the difference in area.
So it would be what I am shading in, in blue right over here. And based on the numbers that we went over right over here, the area that I'm shading in, in blue-- so the difference between GDP in year two and GDP in year one, the area I'm shading in blue-- would be this , the increment.
So this area right over here would be that Now when you look at it over here, you see that that , some of it is due to an increase in quantity. But a lot of it is also due to an increase in price. So if we really wanted to figure out how much more productive the country got, and we still want to measure GDP in dollars, maybe we can take a measure of GDP that measures year two's GDP, but it does it in year one's prices.
So if we could somehow multiply-- if we could multiply year two's quantity by year one's prices, then we would get this rectangle right over here. And then the difference between that and year one, would give us the incremental GDP in year one prices due to quantity. And that's what we care about. We care about total productivity. When we're thinking about GDP one, we say how much more productive did the country get?
So let's try to do it with these numbers right over here. So we can figure out quantity two, we could figure out the quantity in year two just by dividing the GDP by the price.
Just by dividing this area of the entire blue rectangle and dividing it by the price, that will give us the quantity.
Since the value of apples is the price of apples times the quantity produced, we can determine the quantity of apples produced in any year by dividing the value of apples in that year e. The difference in the number of apples produced is lbs. The growth rate percentage increase is.
If we produce more apples we can say our real output has increased. But what has happened to real GDP? Real output of apples has increased from lbs to lbs. Real output of xylophones has increased from to How much has real output increased? Can we say that Real GDP has increased from to items?
What we need is a common denominator, which would allow us to compare apples and xylophones. The common denominator economists use for this purpose is price, since price reflects the value of what something is worth. Real GDP is the value of final goods and services produced in a given year expressed in terms of the prices in a base year.
To calculate Real GDP, we use base year prices and multiply them by current year quantities for all the goods and services produced in an economy. Licenses and Attributions. CC licensed content, Original. In the first quarter of , U. GDP grew by 3. This figure, used in the GDP deflator calculation, accounts for the difference between real and nominal GDP in the quarter. Each of these ways to invest in silver comes with its own risks and rewards. Your risk tolerance plays a crucial role in your game plan for growing your money.
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