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Ch.22 GDP Worksheet 1-calculations

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) $100 2000 $100 $200 2001 $100 $400 2002 $100. Economic Growth? .

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Ch.22 GDP Worksheet 1-calculations

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  1. 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) • $100 2000 $100 • $200 2001 $100 • $400 2002 $100

  2. 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

  3. 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) • $100 2000 $100 • $200 2001 $100 • $400 2002 $100 Conclusions??? Economic growth? Price Levels? There was no economic growth. There was only an increase in price level

  4. #2 Year P soda Q soda P jeans Q jeans NGDP RGDP 2000 $1 200 $10 50 a= $700 b=$700 • $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

  5. 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%)

  6. 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

  7. ………but……… • Price level or inflation increased by 7% • …..not good to have inflation outpace output • “normal” inflation is 1%-2%

  8. #3 Complete Table Year NGDP RGDP GDP Deflator 1. ----- $100 100 2. $120 ---- 120 • $150 $125 ---- • Math : $x/$100 x 100 = NGDP $100 Logic: • Math: $120 /$x x100 = 120 RGDP = 100 Logic: ………see NGDP increase by 20% and Deflator increase by 20%.....so RGDP must not change • 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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