UIUC ECON 303 - growth1b_ch2_note (9 pages)

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growth1b_ch2_note



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growth1b_ch2_note

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Pages:
9
School:
University of Illinois at Urbana, Champaign
Course:
Econ 303 - Inter Macroeconomic Theory

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Econ 303 UIUC Section I Growth theory Chapter 2 Chain weighted GDP GDP measure the level of happiness OECD Better life index www oecdbetterlifeindex org Computing GDP in a simple economy Intermediate Macro Zhao 1 Econ 303 UIUC Example a toy economy In year 2000 Car Apple pounds Quantities 100 10000 Prices 1 000 2 Nominal GDP Year 2000 100 1000 10000 2 120 000 Nominal GDP increases due to increases of prices Quantities 2000 Car 100 Apple pounds 10000 Nominal GDP Real GDP 2000 price 2001 100 10000 Prices 2000 1 000 2 2001 1 100 2 20 120 000 132 000 In current dollars 120 000 120 000 In constant dollars Real and Nominal GDP Growth by decades Which decade has highest growth of real output Which decade has highest growth of price level Intermediate Macro Zhao 2 Econ 303 UIUC Decomposition of nominal GDP GDP Deflator If nominal GDP increases more than real GDP prices must have gone up inflation If nominal GDP increases by the same amount as the real GDP price is stable Inflation rate measures the changes of general price level within a specified period of time change of purchasing power of money base year is 2000 By GDP deflator it is one kind of price index Deflator shows the accumulated effect of inflation By direct measurement published by Bureau of labor statistics Consumer price index CPI Producer price index PPI The most well known measure of aggregate price level CPI To measure the aggregate price level economists calculate the cost of purchasing a basket of goods and services The consumer price index or CPI measures the cost of the market basket of a typical urban American family Intermediate Macro Zhao 3 Econ 303 UIUC Compute the price index in a toy economy 2000 is the base year Basket Quantities Prices 2000 2000 Car 100 1 000 Apple pounds 10000 2 2001 950 2 40 2002 1 000 2 50 2000 2001 2002 120 000 119 000 125 000 100 99 105 Cost of basket CPI 1000 100 2 10000 1000 100 2 5 10000 950 100 2 4 10000 The most well known measure of aggregate price level CPI To



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