Understanding GDP and Price Levels

1. C h a p t e r 2 National-Income Accounting: Gross Domestic Product and the Price Level Macroeconomics Chapter 2

2. Nominal GDP • the dollar (or euro, etc.) value of all the goods and services that an economy produces during a specified period, such as a year. Macroeconomics Chapter 2

3. Nominal GDP • Flow variable - it measures the dollar amount of goods produced per unit of time, such as a year. • GDP in current dollars • Services by government: measured by costs Macroeconomics Chapter 2

4. Macroeconomics Chapter 2

5. Real GDP • Calculating Real GDP • GDP in constant dollars • Multiply each year’s quantity of output of each good by the price of the good in a base year. • Chain-weighted real GDP Macroeconomics Chapter 2

6. Calculations • (nominal GDP)/(implicit price level) = real GDP or • implicit price level = (nominal GDP)/(real GDP) Macroeconomics Chapter 2

7. GDP as a Welfare Measure GDP does not: • Consider change in income distribution • Include non-market goods. • Assign value to leisure. • Consider environmental damage. Macroeconomics Chapter 2

8. GDP by Expenditure • Personal Consumption Expenditures • Gross Private Domestic Investment • Government purchases of Goods and Services • Exports and Imports Macroeconomics Chapter 2

9. Macroeconomics Chapter 2

10. Measuring GDP by Income • National Income – Income earned by factors of production. Macroeconomics Chapter 2

11. Relationship between GDP and National Income Macroeconomics Chapter 2

12. National Income by Sector Macroeconomics Chapter 2

13. Prices • Consumer Price Index (CPI) • Producer Price Index (PPI) • Problem of CPI(PPI) substitution quality new production Macroeconomics Chapter 2