ECON 202 1st Edition Lecture 12Outline of Last Lecture I. GDPOutline of Current Lecture I. GDP ContinuedCurrent LectureI. Real GDP: A Measure of Aggregate Outputa. We need to be able track the quantity of total output over timeb. Real GDP:the total value of the final goods and services produced in the economy during a given year, calculated using the prices of a selected base year. c. Nominal GDP:the value of all final goods and services produced in the economy during a given year, calculated using the prices current in the year in which the output is produced.II. Except in the base year, real GDP is not the same as nominal GDP:output valued at current prices.III. GDP per capita:average GDP per person; not by itself an appropriate policy goal.Aggregate price level:a measure of the overall level of prices in the economy.To measure the aggregate price level, economists calculate the cost of purchasing a market basket. Market basket: a hypothetical set of consumer purchases of goods and services.Price index: the cost of purchasing a given market basket in a given year, where that cost is normalized so that it is equal to 100 in the selected base year.Priceindexinagivenyear=CostofmarketbasketinagivenyearCostofmarketbasketinbaseyear×100IV. InflationThese 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.a. Theinflationrateis the yearly percentage change in a price index, typically based upon consumer price index,orCPI,the most common measure of the aggregate price level.b. The consumer price index,orCPI,measures the cost of the market basket of a typical urban American family.c. Inflationrate=priceindexinyear2−priceindexinyear1priceindexinyear1×100Producer price index(PPI): similar to the CPI but measures changes in the prices of goods purchased by producers.Economists also use the GDP deflator,whichmeasures theprice level by calculating the ratio of nominal to real GDP. The GDP deflator for a given year is 100 times the ratio of nominal GDP to real GDP in that