Download 2. Worksheet 1 Calculations key

Ch.22 GDP
Worksheet 1-calculations
Year
2000
2001
2002
Production of X
20
20
20
Nominal GDP (P x Q)
2000 $100
2001 $200
2002 $400
Price X
$5
$10
$20
Real GDP (current year Q x base yr P)
2000 $100
2001 $100
2002 $100
Economic Growth?
•
•
•
•
•
•
•
•
What does it tell us when NGDP increases?
Could be increase in production
Could be increase in price
Could be combination of production and price
What does it tell us when RGDP increases?
…b/c P is held constant to base year
….increase is due only to increase in Q
….= ECONOMIC GROWTH
Year
2000
2001
2002
Production of X
20
20
20
Nominal GDP (P x Q)
2000 $100
2001 $200
2002 $400
Price X
$5
$10
$20
Real GDP (current year Q x base yr P)
2000 $100
2001 $100
2002 $100
Conclusions??? Economic growth? Price Levels?
There was no economic growth.
There was only an increase in price level
#2
Year
2000
2001
P soda Q soda P jeans Q jeans
$1
200
$10
50
$1
220
$11
50
NGDP
a= $700
c= $770
RGDP
b=$700
d= $720
Mistake – avoid looking at each individual good – this is a model for the
entire economy
example of common mistake: students conclude the economy grew
for soda but not for jeans- this is a microecon. thought process….we are
now in MACRO
e. Value of GDP Deflator in 2000?
NGDP / RGDP x 100 : always 100 in base year
f. Value of GDP Deflator in 2001?
770/720 x 100 = 107
GDP = $$$$$$
Deflator is NOT $$ nor %% …IS index based on 100
• g. from 2000-2001: prices rose approximately
what percentage?
• Compare GDP deflators – measure the change
in price level
• 2nd -1st / 1st
• 107-100/100 = 7%
• h. was the increase in NGDP from 2000-01
mostly due to an increase in real output or
prices?
• Step 1 : Determine what % NGDP increased
• Step 2: Find Deflator – tell you increase in
prices and then conclude the rest would =
increase in RGDP (productivity)
• Or
• Step 2: Find % increase in RGDP and then
conclude the rest would = increase in prices
•
•
•
•
•
NGDP rose from $700 to $770 = 10% increase
Increase in real output = RGDP
2000=$700 2001 = $720 2.85% (3%)
Increase in prices = Deflator = 7%
Conclude – 10%increase in NGDP was MOSTLY
due prices (7%) vs. output (3%)
Evaluate
• Was there economic growth?
• Yes …
• RGDP…. Or
– Real output…. Or
• ……the economy …….
• Grew at a 3% rate
• The growth rate of the economy was 3%
….”normal growth” = 3% per year – long term trend since
the 1950’s
………but………
• Price level or inflation increased by 7%
• …..not good to have inflation outpace output
• “normal” inflation is 1%-2%
#3 Complete Table
Year
1.
2.
3.
NGDP
----$100
$120
$150
RGDP
$100
---$100
$125
GDP Deflator
100
120
---120
1. Math : $x/$100 x 100 = NGDP $100
Logic:
2. Math:
$120 /$x x100 = 120
RGDP = 100
Logic:
………see NGDP increase by 20% and Deflator increase by 20%.....so
RGDP must not change
3. Math: $150/$125 x 100 = 120
see NGDP increase 25% and RGDP increase 25% ..then the increase
is all due to output (RGDP) and no price increase…so….Deflator does
not change
Formative Assessment
• What does it mean to have economic growth?
• What is the difference between Real GDP and
Nominal GDP ?