Lecture 5 GDP (2)Loose ends-Things only economists say-Intermediate vs. final goodsThe pieces of GDPReal vs. nominal GDPShortcomings of GDPLoose endsNew FeatureThings only economists say!“The world will never run out of oil”: why? b/c eventually cost of finding oil is toomuch and many people just quit. people substitute it for something else.Four pieces of GDPConsumption (C): Private spending on goods and services not intended for use infuture production.2011 Consumption: in billions: $10, 729j 71%Investment (I): Private spending on tools, plant, and equipment used to produce futureoutput.Investment $1,855 12%Consumption + Investment: PrivateGovernment (G): Spending by all levels of government on final goods and services.Government: $3, 060 20%Net Exports (NX): Exports minus imports -4%Net Exports: -$568Growth rateGrowth rate of X=%deltaX=change in X/ Starting XExample:GDP at the end of 2010=14, 499GDP at the end of 2011=15, 076GDP growth for 2011=(15076-14499)/14499=3.98%Real versus nominal GDPRecall:GDP is market valuesGDP=sigma (pxq)Nominal GDP: GDP in current dollars.Raw GDP data, unadjusted for price changes.Real GDP: GDP adjusted for changes in the overall price levelGDP in constant dollarsNotation:Y=real GDPp=price levelPY=nominal GDPBase year: 2005Computing real GDPTwo Steps1. Divide to filter out old prices2. Multiply to put in newFor 2011:Real GDP=15, 076/113.4 x 100compute gdp growth rate:14,499/111 x113.4=14, 812(15, 076-14,812)/14,812Recession: short run economic
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