ECON 1051 1nd Edition Lecture 39 Outline of Last Lecture I. GDP Measures Total Productiona. Gross Domestic Productb. Componentsc. EquationII. Does GDP Measure What We Want it to Measure? a. When the BEA calculates GDP it does not include:b. ShortcomingsOutline of Current Lecture I. Calculating Real GDP II. GDP Deflator III. Inflation Current LectureI. Calculating Real GDP a. Nominal GDP i. The value of final goods and services evaluated at current-year prices b. Real GDP i. The value of final goods and services evaluated at base-year prices c. Example2005 2013Product Quantity Price Quantity PriceEye Exams 80 $40 100 $50Pizzas 90 $11 80 $10Textbooks 15 $90 20 $100i. Normal GDP (2013) = (100 x $50) +(80 x $10) + (20 x $100) = $7800ii. Normal GDP (2005) = (80 x $40) + (90 x $11) + (15 x $90) = $5540These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.iii. Rate of economic growth 1. Percent change a. ((7800-5540)/5540) x 100% =40.7%b. On year, on average it grew about 5% i. To figure this out, take 20% and divide it by the amount of years between the two years presented (8)iv. Real GDP (2013) – 2013 quantity but their value from 2005 = (100 x $40) + (80 x $11) + (20 x $90) = $6680 v. Real GDP (2005) = $5540 (it’s the same) vi. Rate of Economic growth 1. Percent changea. ((6680-5540)/5540) x 100%=20% b. On year, one average it grew by 2.5% i. To figure this out, take 20% and divide it by the amount of years between the two years presented (8)II. GDP Deflator a. Price Index b. To calculate:i. Take normal GDP and divide by the real GDP and multiple by 100 ii. (7800/6680) x 100 =116 iii. Normal and real GDP of 2005 are the same so the GDP index is an even 100 1. The starting point is always going to be 100 III. Inflationa. There was inflation in this country from 2005-2013b. Inflation Rate i. 2005 = 100 ii. 2013 = 116iii. ((116-100) / 100) x 100=16% c. Annual inflation rate i. 16%/8 years
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