Lecture 2 Flashcards
Define nominal GDP
This uses current prices to value the economy’s production of goods and services in that year. Changes in nominal GDP reflect both changes in the quantities of goods and services and their prices
How can you calculate nominal GDP?
price of that year x quantity of that year
Define real GDP
This uses constant (base-year) prices to place a value production of goods and services. Changes in real GDP reflect only changes in the quantity of goods and services.
How do you calculate real GDP?
price of the base year x quantity of the year of interest
What are two ways we can measure the price level?
using the CPI and the GDP deflator
What does the GDP deflator do?
It is a measure of the price level calculated as the ratio of nominal GDP to real GDP times 1000.
What is the equation for the GDP deflator?
(nominal GDP/real GDP) x 1000
What does the GDP deflator tell us?
it tells us the portion of the rise in nominal GDP attributable to a rise in prices rather than a rise in the quantities
We can rearrange the GDP deflator equation to get the equation for real GDP. What is this?
(nominal GDP/GDP deflator) x 1000
Using the GDP calculator, what equation can be used to calculate the aggregate inflation rate between two consecutive years (eg. 2016 and 2017)?
(deflator 2017/deflator 2016) x 100 (not 1000)
this is equal to:
[{(nominal2017/real2017) x 1000}/{(nominal2016/real12016) x 1000}] x 100
How can we calculate a percentage change?
[(final-initial)/initial] x 100
GDP excludes items produced and consumed at ________
at home
GDP excludes _____ goods
illegal
GDP excludes goods produced in ________ years, but charges for services provided by dealers of _____ goods are included
previous
used
GDP does not include ___________ products. Give examples
financial
eg. stocks or insurance
GDP does not measure happiness or ________-
well-being
GDP does not measure a nation’s total _______
worth
GDP is a measure for the country, not what?
individuals within the country
Although it is an imperfect measure, GDP is often used as a key indicator of a country’s ______ standard and economic __________
living
development
What 7 things does GDP not take into account regarding welfare?
- nutrition
- health and longevity
- the distribution of income
- education levels and knowledge
- gender equality
- the ability for people to participate in society ie. political and civil freedoms
- happiness
What are two reasons to use GDP per capita?
- GDP is highly correlated with most things we are interested in such as life expectancy or adult literacy rate
- GDP is a cardinal measure, not just an ordinal measure so we can use it to make comparisons across countries or through time