Unit Two: Nominal GDP and Real GDP

January 29, 2015

Nominal GDP- Value of output produced in current prices.

* Price multiplied by Quantity

- Can increase from year to year if either output or price increase.

Real GDP- Value of output produced in constant or base year prices. 

* Base price multiplied by quantity

-Can increase from year to year only if output increases. 

Price index:measures inflation by tracking changed in the price of a market basket of goods compared with the base years. 

Price of market basket of goods

*divided by

Base price of market baskets 

*multiplied by

100

GDP Deflator: is a price index used to adjust from nominal to real GDP. 

-For years after the base years the GDP deflator is greater than 100.

-For yeats before the base year the GDP deflator is less than 100. 

Nominal GDP

*divided by

Real GDP

*multiplied by 

100

Inflation Rate: 

New GDP deflator 

-

Old GDP deflator

*Divided by

Old GDP Deflator

*nultiplied by 

100

Unit Two: Find GDP and much more!

January 28, 2015

To find GDP add up market value on...

Expenditure Approach: (Most popular and Reliable)

C + IG + G + Xn = GDP

Income Approach: Add up all of the income earned by household and firms in a single year. (Unreliable)

GDP = W + R + I + P + Statistical Adjustments. 

W: wages

R: rents

I: interest

P: profit

SA (Statistical Adjustment): Whatever is left to equal the Expenditure approach when added up wages, rents, interest, and profits. 

Here are some formulas!

1. Budget: 

Government purchases of goods and services

+

Government transfer payments

-

Government tax and fee collection

If your number is Positive it is a deficit.

If your number is Negative it is a Surplus. 

2. Trade: 

Exports

-

Imports

If your number is Positive it is a Surplus.

If your number is Negative it is a Deficit. 

3. GNP: (Gross National Product)

GDP

-

Net foreign factor payments

4. NNP: (Net National Product)

GNP

-

Depreciation

5. NDP: (Net Domestic Product)

GDP

-

Depreciation

6. National Income:

Opt One:

GDP

-

Indirect business taxes

-

Depreciation

-

Net foreign factor payments

Opt Two:

Compensation of employees

+

Rental income

+

Interest income

+

Proprietors income

+

Corporate profit.

7. Disposable Personal Income:

Nat'l income

-

Personal household taxes

+

Gov't transfer payments

Unit Two GDP, GNP and much more!

     January 27, 2015

GDP - Gross Domestic Product

   The total dollar value of all goods and services produced within a countries borders within a given year.

GNP - Gross National Product

   The total value of all final goods and services produces by Americans in a year. 

Whats included in GDP? 

C + Ig + G + Xn = GDP

C - consumption

     67 % of the economy. 

     Final goods and Services.

Ig - Gross Private Domestic Investment

  1. Factor equipment maintenance.

  2. New factory equipment.

  3. Construction of housing.

  4. Unsold inventory of products built in a year.

G - Government spending

-Military Spending.

Xn - Net export

     Exports - Imports

Whats not included in GDP?

1. Non-market activities

-Volunteering.

-Family Work.

-Selling Cannabis. 

2. Intermediate goods

-Goods and services that are purchased for resale.

-Further processing and manufacturing.

3. Used/Second hand goods.

4. Final Transaction 

-Stocks. 

-Bonds.

-Real estate. 

5. Gifts or transfer payments.

a) Private - Produce no output, simply transfer funds. from one private individual to another. EX: Scholarships.

b) Public - Recipients contribute nothing to the net production. EX: Welfare Payments and Social Security. 

Here are some examples!

1. You buy a Christmas toy at Toys-R-Us. 

     Yes counted in GDP - Because of  "C" 

2. You spend a week painting the family home (your hours of effort)  

     Not counted in GDP - Because "non- market activity

3. The Government buys 100 new helicopters for use overseas. 

     Yes counted in GDP - Because of  "G"

Unit One: Circular flow Chart.

January 23, 2015