Lecture 2

Question 1

Define nominal GDP

Answer 1

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

Question 2

How can you calculate nominal GDP?

Answer 2

price of that year x quantity of that year

Question 3

Define real GDP

Answer 3

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.

Question 4

How do you calculate real GDP?

Answer 4

price of the base year x quantity of the year of interest

Question 5

What are two ways we can measure the price level?

Answer 5

using the CPI and the GDP deflator

Question 6

What does the GDP deflator do?

Answer 6

It is a measure of the price level calculated as the ratio of nominal GDP to real GDP times 1000.

Question 7

What is the equation for the GDP deflator?

Answer 7

(nominal GDP/real GDP) x 1000

Question 8

What does the GDP deflator tell us?

Answer 8

it tells us the portion of the rise in nominal GDP attributable to a rise in prices rather than a rise in the quantities

Question 9

We can rearrange the GDP deflator equation to get the equation for real GDP. What is this?

Answer 9

(nominal GDP/GDP deflator) x 1000

Question 10

Using the GDP calculator, what equation can be used to calculate the aggregate inflation rate between two consecutive years (eg. 2016 and 2017)?

Answer 10

(deflator 2017/deflator 2016) x 100 (not 1000)

this is equal to:

[{(nominal2017/real2017) x 1000}/{(nominal2016/real12016) x 1000}] x 100

Question 11

How can we calculate a percentage change?

Answer 11

[(final-initial)/initial] x 100

Question 12

GDP excludes items produced and consumed at ________

Answer 12

at home

Question 13

GDP excludes _____ goods

Answer 13

illegal

Question 14

GDP excludes goods produced in ________ years, but charges for services provided by dealers of _____ goods are included

Answer 14

previous

used

Question 15

GDP does not include ___________ products. Give examples

Answer 15

financial

eg. stocks or insurance

Question 16

GDP does not measure happiness or ________-

Answer 16

well-being

Question 17

GDP does not measure a nation’s total _______

Answer 17

worth

Question 18

GDP is a measure for the country, not what?

Answer 18

individuals within the country

Question 19

Although it is an imperfect measure, GDP is often used as a key indicator of a country’s ______ standard and economic __________

Answer 19

living

development

Question 20

What 7 things does GDP not take into account regarding welfare?

Answer 20

1. nutrition
2. health and longevity
3. the distribution of income
4. education levels and knowledge
5. gender equality
6. the ability for people to participate in society ie. political and civil freedoms
7. happiness

Question 21

What are two reasons to use GDP per capita?

Answer 21

1. GDP is highly correlated with most things we are interested in such as life expectancy or adult literacy rate
2. GDP is a cardinal measure, not just an ordinal measure so we can use it to make comparisons across countries or through time