ECON 1102 Week 2/Chapter 6 Notes
ECON 1102 Week 2/Chapter 6 Notes ECON 1102
U of M
Popular in Principles of Macroeconomics
verified elite notetaker
Popular in Macro Economics
This 3 page Class Notes was uploaded by Colin Fritz on Sunday September 18, 2016. The Class Notes belongs to ECON 1102 at University of Minnesota taught by David Bradley in Fall 2016. Since its upload, it has received 23 views. For similar materials see Principles of Macroeconomics in Macro Economics at University of Minnesota.
Reviews for ECON 1102 Week 2/Chapter 6 Notes
Report this Material
What is Karma?
Karma is the currency of StudySoup.
Date Created: 09/18/16
ECON 1102 Week 2 Notes/Chapter 6 Colin Fritz Gross domestic product – value of all goods and services produced in a country within one years’ time - GDP per capita is a countries GDP divided by its population An example calculation of GDP is if in 2010 the U.S produced 5000 trucks at a price of $30,000 and also produced 600 computers at a price of $1000 then the GDP would be calculated as such: Good Price Quantity Value Trucks 30,000 x 5000 = 150,000,000 Computers 1,000 x 600 = 600,000 GDP 150,600,000 Keep in mind GDP is only calculated with final goods. Final Good – a good that is sold as a final product (not used in the production of another good) - A good example to describe this is flour. Flour may be sold to a pizza company to be made into pizza. This would mean that pizza is a final good, but the flour would not be. GDP does not include the secondary market of products (used). Since GDP measures the production of a country the sale of a used product doesn’t contribute to production. Similarly the measurement of GDP does not include the sales of old houses or financial securities i.e. stocks/bonds. But the services of real estate agents and brokers are accounted for in the measurement of GDP. Growth Rates The growth rate, of GDP in a year, can be calculated quite easily. Here is an example: GDP growth of 2014: (GDP2014–GDP2013) ×100 (GDP 2013) Now here it is with numbers: 54,000−52,000 ×100=3.8 52,000 The growth rate of GDP in the year 2014 was 3.8%. Nominal vs. Real GDP The calculation above represents the growth in nominal GDP. This is a calculation that doesn’t account for the changes in price from year to year whereas real GDP would. Economists typically use real GDP because it is much more relevant information. To calculate real GDP growth simply use the prices of the year that you are trying to relate the GDP to. Nominal 2013 Nominal GDP = 2013 Prices x 2013 Quantities = $15 trillion 2000 Nominal GDP = 2000 Prices x 2000 Quantities = $10 trillion Real 2013 GDP in 2013 Dollars = 2013 Prices x 2013 Quantities = $15 trillion 2000 GDP in 2013 Dollars = 2013 Prices x 2000 Quantities = $13 trillion As you can see there is quite the change in production value. This is especially true when comparing distant years. You must know how to calculate nominal GDP but the real GDP calculation is much more accurate of a comparison measure. GDP Deflator The GDP Deflator is a price index that you can use to calculate inflation. NominalGDP GDPdeflator= x100 RealGDP Other Things to Know Recession – significant decline in real GDP and deployment Government purchases – spending by all levels of government on final goods and services Net exports – value of all exports minus value of all imports