ECN 222 1st Edition Lecture 10Outline of Last Lecture - GDP- Investment- Government Purchases- Net Exports- Calculating GDP- Nominal and Real GDPOutline of Current Lecture - GDP = The Sum of (P x Q)- Calculating GDP****- GDP and Economic Well- BeingCurrent LectureGDP = The Sum of (P x Q)- Problem with comparing GDP across time, prices change also- Nominal GDP uses current prices - Real GDP uses base year priceNGDP2011 $8250 Inflation % Change of Price <Get rid of%Change output (change of Q) <Focus with GDP <Use real GDPThese 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.NGDP2010 $6000 Pizza LatteP Q P Q2010 10 400 2.00 10002011 11 500 2.50 11002012 12 600 3.00 1200Calculating GDP- Sum up price x quantity for each good- More importantly, which price?Real GDP (RGDP)RGDP2010=(10x400) + (2 x 1000) = 6000 <Base year N&R sameRGDP2011 = (10 x 500) + (2 x 1100) = 7200RGDP2012 = ( 10 x 600) + ( 2 x 1100) = 8400% = New-Old/Old x 100GDP DeflatorThe GDP deflator is a measure of the overall level of pricesDef: (unit less) GDP deflator = 100 x nominal GDP/Real GDPOne way to measure the economy’s inflation rate is to compute the percentage increase in the GDP deflator from one year to the next.NGDP = Current Price x QuantityRGDP = Base Price x QuantityGDP Deflator = 100 x NGDP/RGDPInflation = New Deflator – Old Deflator/ Old Deflator x 100GDP and Economic Well-being- Real GDP indicates total economic activity- Real GDP per capita is the main indicator of the average person’s standard of living GDP is not a perfect measure of well beingGDP Does Not Value:- Environmental quality- Leisure time- Non-market activity, such as the child care a parent provides his or her child at home- An equitable distribution of income- But having a large GDP enables a country to afford better schools, a cleaner environment, health care,