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Gross Domestic Product GDP GDP • Gross Domestic Product – Dollar value of all goods and services produced within a country’s border in a given year – Measures a country’s well-being GDP Nominal GDP – GDP measured in current prices Real GDP – GDP expressed in constant unchanging prices -has been adjusted for inflation (general increase in prices) Consumer Price Index • CPI – helps measure inflation – Uses a market basket of typical goods/services for an urban household, to compare prices over time – Market basket includes food, rent, clothing, transportation, medical care, entertainment, tuition and more – If prices have gone up according to CPI then inflation has increased Limitations of GDP 1. Non-market activities – doesn’t measure services you perform for yourself (mowing the lawn, stay at home mom) 2. Underground activities – Black market - Informal transactions 3. Quality of life Formulas nominal GDP Real GDP = x 100 CPI Economic Growth Rate Real GDP Yr. 2 – Real GDP Yr. 1 x100 Real GDP Yr. 1
