2.4 Real versus Nominal GDP

Table 2.2 Nominal and Real GDP
Year Nominal GDP (billions of current $) GDP Deflator
(1992 = 100) (chained)
Real GDP
(billions of 1992 $)
1990 5,743.8 93.60 6,136.3
1991 5,916.7 97.32 6,079.4
1992 6,244.4 100.00 6,244.4
1993 6,558.1 102.64 6,389.6
1994 6,947.0 105.09 6,610.7
1995 7,269.6 107.51 6,761.7
1996 7,661.6 109.53 6,994.8
1997 8,110.9 111.57 7,269.8
Source: Economic Report of the President, 1999.

Measuring Inflation
Inflation is defined as a persistent rise in the general price level. This price level is usually measured by the consumer price index, the CPI, a price index designed to reflect growth in prices of consumer goods and services. If the prices of all consumer goods and services rise by 10 percent, the CPI rises by 10 percent to reflect these increases. The CPI is calculated by observing changes in the cost of purchasing a typical bundle of consumer goods and services. As the cost of buying this bundle rises (falls), the CPI rises (falls). Thus the CPI is a weighted average of all consumer prices, with the weights given by the relative importance of different goods or services in the typical bundle of purchases. A survey of the prices of about 80,000 items is used in calculating the CPI each month. The typical bundle currently in use is based on results from a national survey (the Consumer Expenditure Survey) of almost 36,000 people undertaken during the years 1993 to 1995. This bundle is divided into eight general categories; the following list gives their approximate weighting and examples of their components.
1. Food and beverages (16%): breakfast cereal, milk, coffee, chicken, wine, full service meals and snacks.
2. Housing (40%): rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture.
3. Apparel (5%): men's shirts and sweaters, women's dresses, jewelry.
4. Transportation (18%): new vehicles, airline fares, gasoline, motor vehicle insurance.
5. Medical care (6%): prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services.


Macroeconomic Essentials. Understanding Economics in the News 2000
Macroeconomic Essentials - 2nd Edition: Understanding Economics in the News
ISBN: 0262611503
EAN: 2147483647
Year: 2004
Pages: 152

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