Nominal vs Real GDP + CPI

Nominal GDP (P x Q)

• Value of output produced in current year prices. 
• Can increase from year to year if output increases or prices increase. 

Real GDP (Base Year Price x Quantity) 

• Value of output produced in constant base year prices that is adjusted inflation 
• Can increase from year to year only if output increases 
• In the base year current prices equal constant 
• In years after the base year Nominal GDP exceeds real GDP 
• In years before the base year real GDP exceeds Nominal GDP

GDP Deflator 

• Price Index used to adjust from nominal to real GDP 
• In the base year the GDP Deflator is always equal to 100
• For Years after the base year GDP Deflator is greater than 100 
• For Years before the base year GDP Deflator is less than 100

Formula 

• Nominal/Real GDP X 100

Consumer price index 

• Measures the Cost of a market basket of goods for a typical urban american family. 

Formula 

• Cost of Market Basket of goods in a given year/Cost of a market of goods in the base year x 100