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Nominal GDP vs Real GDP

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Nominal GDP is found by multiplying the quantity of each good produced by its price, and adding these sums. Thus we have:
2002: 10 +40 = 50
2003(case1): 15 +80 = 95
2003 (case2): 15+80 = 95
2003 (Case 3): 22.50+160=182.50

In 2002, the base year, nominal and real GDP are the same by definition. In the following year, the real GDP is found by using prices from the base year with quantities from each case. For example, for case 1 the real GDP would be:
10 x $1 + 20 x $2 = $50. Because the prices of coffee and milk increased from year 1 to year 2 while the quantities produced remained the same, the nominal GDP increased while the real GDP did not.

Transfer payments are not counted when calculating GDP. This is because they are merely a transfer of funds, and do ...

Solution Summary

Nominal GDP is assessed; transfer payments and the multiplier