Econ 1102 Recitation 3 Gina Pieters Recitation 3 A B C D Flow Diagrams What goes into GDP Computing GDP Real vs Nominal GDP Practice Problems A Flow Diagrams B What goes into GDP Gross Domestic Product GDP The value of final goods and services produced within the borders of a given country during a given period of time Page 1 of 4 Econ 1102 Recitation 3 Gina Pieters Goods NOT included in GDP 1 Intermediates 2 Land or Inventories Things in which there is only a transfer of ownership 3 Informal Markets Home production These things can t be measured 4 Used Goods 5 Goods produced outside of the country Example Are these goods Included in USA GDP By definition of GDP approximately the revenue to firms from final goods that are domestically produced Y R NOT calculation which is Y C I G NX Example GDP Change Reason 1 You buy a used car for 12 000 2 You build yourself a computer worth 3 000 3 Toyota builds a car in USA then sells it in the USA market for 40 000 4 A pizza company spends 10 on bread and 5 on cheese to make pizza which sells for 20 C Computing GDP Example Carville USA has 3 factories Metal Plastic and a car factory The metal factory sells all of its output to the car factory The plastic factory sells 80 worth of plastic to the car factory 20 to the government and the rest to consumers The Car factory exports 50 of its cars and sells the rest to consumers What is the GDP of Carville 2005 Total Output Metal 100 Plastic 130 Car Factory 250 Nominal GDP in Carland in 2005 Metal Plastic Cars Total Consumption Investment Government Purchases Imports Exports GDP D Real vs Nominal GDP Continue with the above example but let s just focus on the goods that feature in GDP plastic and cars and let s ignore the output of the metal factory that serves as an intermediary good Base Year 2005 Year Price of Quant of Price of Cars Quant of Page 2 of 4 Econ 1102 Recitation 3 2005 2006 2007 Year Gina Pieters Plastic 10 15 12 Plastic 5 10 20 25 25 30 Nominal GDP Cars 10 8 15 Real GDP 2005 2006 2007 Year GDP Deflator 2005 2006 2007 Practice Problems Q1 Example 1 The government pays 800 000 for a plot of land to build a new high school 2 A business pays 1 2 mil for land to build a new office building 3 A business builds a new office building worth 2 mil 4 Toyota builds a car in USA then sells it in Mexico for 40 000 GDP Change Reason Q2 The Pizzatown economy produces two goods cheese and pizzas each by a separate firm The cheese company produces output valued at 100 the pizza company output is valued at 60 The pizza company buys 20 of cheese to produce its product everything else is purchased by consumers The economy also imports 40 of soda purchased by consumers The government purchases 60 of apples which is distributes for free to the various inhabitants of Pizzatown What is the GDP of Pizzatown Q3 Calculate Real GDP Nominal GDP and GDP Deflator if the base year is 2006 Base Year 2006 Year Price of Quant of Price of Cars Quant of Plastic Plastic Cars 2005 10 5 25 10 2006 15 10 25 8 2007 12 20 30 15 Year Nominal GDP Real GDP GDP Deflator Page 3 of 4 Econ 1102 Recitation 3 Gina Pieters 2005 2006 2007 Q4 Draw a Flow diagram with a 4 Agents a profit earning firm consumers government and the Rest of the World and 2 markets Factor and Output Markets Page 4 of 4
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