An economy produces only food and fun. The table shows the quantities produced and prices in 2018 and 2019. The base year is 2019. In 2018 Item Quantity Price Calculate nominal GDP in 2018 and nominal GDP in 2019. $1 Food 98 Fun 57 $3 Nominal GDP in 2018 is $ In 2019 Item Quantity Price Food 71 $5 Fun 68 $8
Nominal GDP is the GDP that is not adjusted for prices and is estimated by only using the prices in the year in which the output is produced. It only captures the natural increase and decline of prices which tracks the gradual rise of the value on an economy over a time period. It is used to compare GDP to other variables which are also not adjusted to inflation. The nominal GDP can be estimated using 3 methods that are income, expenditure, or production method of calculating GDP. In the Income method, all the income earned through wages, interest, rents, and profits earned by the firms and individuals is added together during a year. The production method estimated net production by subtracting consumption from the estimated output in a year. The expenditure method estimates the sum of all services and goods purchased within a nation over a course of a year.
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