AP®︎ Macroeconomics: Topic 2.6 Flashcards

Master key terms and definitions for Topic 2.6 of AP Macroeconomics – Real v. Nominal GDP to help you prep for quizzes and the AP exam.

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Term

Calculating Nominal GDP

Definition

Multiply each final good's current-year quantity by its current-year price, then add.

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Calculating Nominal GDP
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Multiply each final good's current-year quantity by its current-year price, then add.

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GDP Deflator
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A price index equal to nominal GDP divided by real GDP, times 100.

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GDP Deflator in the Base Year
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It equals 100 because nominal GDP and real GDP are the same.

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Why Nominal GDP Can Be Misleading
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It can rise from higher prices alone, even if actual production does not increase.

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Nominal GDP vs. Real GDP
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Measures output using current prices versus base-year prices to separate prices from production.

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Base Year and Constant Prices
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The reference year whose prices are held constant to calculate inflation-adjusted output.

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Calculating Real GDP
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Finds inflation-adjusted output using base-year prices or by deflating nominal GDP with the GDP deflator.

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