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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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