- ESA tutoring Mondays and Wednesdays from 5 to 6 in Helen C. White room 4279- Omit #6 on the HW- There will be a midterm on March 6th, the room assignments were sent out in an email and are posted on the class website; all topics through unemployment will be covered---------------------------------------------------------------------------------------------------------------------- Nominal GDP vs. Real GDPo Nominal uses current dollars, real uses constant dollarso *Abbreviations: CY = current year BY = base year PY = previous yearo Nominal GDP = ∑i=1nPiQi using current year prices E.g. nominal GDP2012 = PA2012QA2012 + PB2012QB2012 + … + Pn2012Qn2012 It may vary from year to year because: - Prices vary- Quantities vary- Both prices and quantities varyo Real GDP = ∑i=1nPiQi using constant prices E.g. Real GDP2012 with BY 2010 = PA2010QA2012 + PB2010QB2012 + … + Pn2010Qn2012 E.g. Real GDP2013 with BY 2010 = PA2010QA2013 + PB2010QB2013 + … + Pn2010Qn2013 *Real GDP varies from year to year ONLY if quantities varyo GDP deflator = (current dollars)/(constant dollars) = (nominal GDP in year n)/(real GDP in year n)o E.g. 1Year 1 Year 2P Q P QBooks $10 100 $12 90Pizza $5 50 $6 60 Calculate nominal GDP:- Nominal GDPY1 = 10(100) + 5(50) = $1250- Nominal GDPY2 = 12(90) + 6(60) = $1440 Calculate real GDP using year 1 as BY- Real GDPY1 = nominal GDPY1 = $1250- Real GDPY2 = 10(90) + 5(60) = $1200 (use prices from year 1)- *Real GDPBY = nominal GDPBY Interpretation- Nominal GDP increased from year 1 to year 2- prices and quantities varied- Real GDP decreased from year 1 to year 2- production fell GDP deflator- GDP deflatorY1= (nominal GDPY1)/(real GDPY1) = 1- GDP deflatorY2 = (1440)/(1200) = 1.2 (a 20% increase)- *GDP deflator in BY will ALWAYS = 1 (or a scale factor of 1)o E.g. 2Year GDP deflator (on a 100 pt. scale)% change in general price level1 100 --2 120 20%3 150 25%4 200 33% % change in general price level = [(GDP deflator CY – GDP deflator PY)/(GDP deflator PY)]*100% % change in general price level Y2 = [(120 – 100)/100]*100 = 20%o E.g. 3 Rate of growth of real GDP = [(real GDPCY – real GDPPY)/(real GDPPY)]*100%Year Real GDP Rate of Growth1 1000 --2 1250 25%3 1500 20%- Unemploymento Costs Human costs (psychological, etc.) Economic costs (wasting resources & lost production)o Measuring unemployment Labor force (LF) = unemployed + employed Civilian non-institutionalized population:- Employedo Includes full time and part time workerso Those working 1 hour/week or more for pay are considered “employed”< 16 year olds, those in the military, those institutionalized (prisoners, mental health patients, etc.)Not in the labor forceUnemployedEmployed< 16 year olds, those in the military, those institutionalized (prisoners, mental health patients, etc.)Civilian non-institutionalized populationU.S. populationo Those working 15 hours/week or more unpaid are considered employedo People on vacation/not currently at work but still have a job are considered employed- Unemployedo Includes those who aren’t workingo AND who are available to worko AND who have made a specific effort to find work in the last 4
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