Real GDP vs Nominal Flashcards
Changes in total expenditure on good and services from one year to another can be looked at in two ways
1) the economy is producing a large output of good and services
2) goods and services are being sold at higher prices
What is the difference between GDP at constant prices and GDP at market prices
GDP at constant shows how an economies production changes over t8me.
GDP at market price doesn’t take into consideration the changes of price overtime
What is real GDP
The measure of the value of the output in the economy which takes into account the changes in price over tim
What’s the equation to calculate GDP deflator
Nominal GDP/real GDP
What’s the equation to calculate inflation
(Current GDP deflator - current)/ current * 100
What’s the equation to calculate the growth rate of real GDP
(current GDP - previous GDP)/ previous GDP *10p
What are the two in Ed used to measure changes in the price level
GDP deflator
CPI
Defines GDP deflator
Ratio of nominal GDP to real GDP
What’s the equation to calculate the CPI
Cost of basket at current price / cost of the same basket at base year price
Why is the GDP deflator of the base year always 100
Because nominal GDP and real GDP must be in the same base year
GDP deflator reflects what is happening to prices are quantiles
Prices only
Real GDP reflects what is happening to prices or quantiles
Quantiles produced
What is the cost of living
Refers to how much money people need to maintain certain standards of living in terms of good and services they can afford to buy
What is CPI
Measure of overall prices of goods and services bought by a typical customs
What are the stages of constructing price index
- Fix the basket
- Find the price
3, compute the cost of the basket - Choose the base year and compute the price index
- Compute the inflation rate
What are the 4 of using the CPI
- Substitution bias
- Introduction of new good
- Unmeasured quality change
- Relevance of the CPI
What are the 4 of using the CPI
- Substitution bias
- Introduction of new good
- Unmeasured quality change
- Relevance of the CPI
What is okuns law
Has to do with the relationship between unemployment and real GDP growth
Define unemployment
The proportion of the total labor force that can’t find jobs
What is a Phillips curve
Describes a trade off between inflation and unemployment
