# Ch.22 GDP Worksheet 1-calculations

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```					                  Ch.22 GDP
Worksheet 1-calculations
Year              Production of X           Price X
2000                20                     \$5
2001                20                     \$10
2002                20                     \$20

Nominal GDP (P x Q)    Real GDP (current year Q x base yr P)
2000 \$100              2000 \$100
2001 \$200              2001 \$100
2002 \$400              2002 \$100
Economic Growth?
•   What does it tell us when NGDP increases?
•   Could be increase in production
•   Could be increase in price
•   Could be combination of production and price
•   What does it tell us when RGDP increases?
•   …b/c P is held constant to base year
•   ….increase is due only to increase in Q
•   ….= ECONOMIC GROWTH
Year              Production of X            Price X
2000                20                      \$5
2001                20                      \$10
2002                20                      \$20

Nominal GDP (P x Q)     Real GDP (current year Q x base yr P)
2000 \$100               2000 \$100
2001 \$200               2001 \$100
2002 \$400               2002 \$100

Conclusions??? Economic growth? Price Levels?
There was no economic growth.
There was only an increase in price level
#2
Year    P soda Q soda P jeans Q jeans       NGDP        RGDP
2000    \$1     200    \$10      50          a= \$700      b=\$700
2001    \$1     220    \$11      50          c= \$770      d= \$720

Mistake – avoid looking at each individual good – this is a model for
the entire economy
ex: conclude the economy grew for soda but not for jeans

e. Value of GDP Deflator in 2000?
NGDP / RGDP x 100 : always 100 in base year
f. Value of GDP Deflator in 2001?
770/720 x 100 = 107

GDP = \$\$\$\$\$\$     Deflator is NOT \$\$ nor %% …IS index based on 100
• g. from 2000-2001: prices rose approximately what
percentage?
• Compare GDP deflators – measure the change in price level
• 2nd -1st / 1st
• 107-100/100 = 7%

• h. was the increase in NGDP from 2000-01 mostly due to an
increase in real output or prices?
• NGDP rose from \$700 to \$770 = 10% increase
• Increase in real output = RGDP
• 2000=\$700 2001 = \$720 2.85% (3%)
• Increase in prices = Deflator = 7%
• Conclude – 10%increase in NGDP was MOSTLY due prices
(7%) vs. output (3%)
Evaluate
• Was there economic growth?
• Yes …
• RGDP…. Or
– Real output…. Or
• ……the economy …….
• Grew at a 3% rate
• The growth rate of the economy was 3%

….”normal growth” = 3% per year – long term trend
since the 1950’s
………but………
• Price level or inflation increased by 7%
• …..not good to have inflation outpace output
• “normal” inflation is 1%-2%
#3 Complete Table
Year           NGDP            RGDP           GDP Deflator
1.             -----           \$100           100
2.             \$120            ----           120
3.             \$150            \$125           ----

1. Math : \$x/\$100 x 100 = NGDP \$100
Logic:
2. Math:       \$120 /\$x x100 = 120     RGDP = 100
Logic:
………see NGDP increase by 20% and Deflator increase by 20%.....so
RGDP must not change
3. Math: \$150/\$125 x 100 = 120
see NGDP increase 25% and RGDP increase 25% ..then the increase
is all due to output (RGDP) and no price increase…so….Deflator does
not change

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 views: 9 posted: 9/24/2013 language: pages: 8