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Question: ow do we get from nominal values to real values...

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ow do we get from nominal values to real values? We use a price index to measure the price level in the economy. Common price indices include: 1. The GDP deflator: defined as nominal GDP relative to real GDP. Nominal GDP GDP deflator = Real GDP 2. The Consumer Price Index (CPI): the price level of a market basket of goods and services A price index is always measured in terms of a base year. For example, if you go to the Federal Reserve see that the annual data is presented in 2010 dollars. In other words, 2010 is the base year, and all other Year CPI (2010 dollars) 100 consumed by a typical urban household. Bank of St. Louis website (www.fred.stlouisfed.org), and search for the consumer price index, you will prices are measured relative to 2010 prices. The base year is always set equal to 100. For 2009-2011: 2009 98.396 2010 100.000 2011 103.158 In 2011, the CPI is greater than 100. So, the price level increased between 2010 and 2011. In 2009, the CPI is less than 100. So, the price level was lower in 2009 than in 2010. o oUsing the information above, answer the following questions. Say that nominal GDP in 2016 is $10 trillion. The GDP deflator (in 2005 dollars) is 111. In(tael a) Have prices increased or decreased between 2005 and 2016? b) What is real GDP in 2016?

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