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GPD and Changes in Price Level

GPD and Changes in Price Level. Chapter 13, Section 2. Cover Story “Eyes on the Price” (pg. 350). Inflation is a rise in the general price level Important to keep track of because it distorts the economic figures that we keep Compare Figure 13.1 (pg. 342) and 13.4 (pg. 351)

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GPD and Changes in Price Level

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  1. GPD and Changes in Price Level Chapter 13, Section 2

  2. Cover Story “Eyes on the Price” (pg. 350) • Inflation is a rise in the general price level • Important to keep track of because it distorts the economic figures that we keep • Compare Figure 13.1 (pg. 342) and 13.4 (pg. 351) • What is the difference?

  3. Constructing a Price Index • Price index is a statistical series that can be used to measure changes in prices over time (specific product or range of products)

  4. How do you construct a price index?(pg. 352, Figure 13.5) • Select a base year – a year that serves as the basis of comparison for other years • Select the market basket – a representative selection of commonly purchased goods and services • Record price of each item into market basket • Total the prices

  5. 3 Major Price Indexes

  6. Real vs. Current GDP • Current GDP – not adjusted to remove the effects of inflation • Real GDP – distortions of inflation have been removed (GDP in constant dollars) • what the GDP would have been if prices did not change from what they were in the base year

  7. Converting GDP into Real Dollars • GDP = (GDP in current dollars/implicit GDP price deflator) x100

  8. Comparing GDP in Different Years Use the same equation but substitute a different year

  9. Homework Chapter 13 Questions #6, 8-13

  10. Computing a Price Index and Calculating Inflation (Worksheet)

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