PRIN MACROECONOMICS ECON 2010
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This 3 page Class Notes was uploaded by Harrison Fahey on Tuesday October 13, 2015. The Class Notes belongs to ECON 2010 at Louisiana State University taught by Sarah Quintanar in Fall. Since its upload, it has received 24 views. For similar materials see /class/223020/econ-2010-louisiana-state-university in Economcs at Louisiana State University.
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Date Created: 10/13/15
Jeff Lytle Econ2010 211 1 Real GDP vs Nominal GDP 0 Calculating Real GDP 0 Nominal GDP 7 The value of nal goods and services evaluated at currentyear prices 0 Real GDP 7 The value of nal goods and services evaluated at base 7 year prices 0 Gross National Product GNP 0 Gross National Product GNP is the value of nal goods and services produced by residents of the United States even if the production takes place outside the US I National Income 0 National income is calculated as GDP minus the consumption of xed capital or depreciation I Personal Income 0 Personal income is income received by households I Disposable Personal Income 0 Disposable personal income is equal to personal income minus personal taX payments 0 Comparing GDP Among Countries I Per capita GDP can be used to compare relative standards of living among various countries I Because of difference in nonmarket activities and difference in product prices per capita GDP may be a misleading measure of living standards I Purchasing power parity adjusts for different relative prices before making comparisons 0 Gross Progress Indicator I The genuine progress indicator GPI makes a variety of adjustments to GDP to better measure the progress of society rather than just economic activity I The GPI includes social goals such as pollution reduction education and health 0 The GDP De ator I Price Level 7 a measure of the average prices of goods and services in the economy I GDP de ator 7 A measure of the price level calculated by dividing nominal GDP by real GDP and multiplying by 100 I GDP De ator Nominal GDPReal GDP x 100 0 Economic Welfare Over Time I If increases in GDP are due to increases in prices then welfare does not increase I Changes in welfare over time are best indicated by changes in real GDP nominal GDP adjusted for in ation 0 Real GDP Nominal GDP GDP De ator x 100 0 Chapter 8 0 In ation I In ation is a continual rise in the price level I De ation is a continual fall in the price level I In ation or De ation is measured with changes in price indexes I Price Index 7 a number that summarizes what happens to a weighted composite of prices of a selection of goods over time 0 Price Level 7 A measure of the average prices of goods and services in the economy 0 In ation Rate 7 The percentage increase in the price level from one year to the next 0 Creating a Price Index I A price index is calculated by dividing the current price of a basket of goods by the price of the basket in a base year then multiplying by 100 0 Price Index Price of basket in current yearPrice of basket in base year x 100 0 Consumer Price Index 7 An average of the prices of the goods and services purchased by the typical urban family of four 0 Real and Nominal Concepts I Nominal output is the total amount of goods and services measured at current prices I Real output is the total amount of goods and services produced adjusted for price level changes 0 Real Output Nominal OutputPrice Index x 100 0 Does In ation Impose Cost on the Economy I In ation Affects the Distribution of Income 0 The extent to wich in ation redistributes income depends in part on whether the in ation is anticipated 7 in which case consumers workers and firms can see it coming and can prepare for it 7 or unanticipated 7 in which case they do not see it coming and do not prepare for it I The Problem with Anticipated In ation 0 Menu Costs the costs to fums of changing prices I The Problem with Unanticipated In ation 0 When the actual in ation rate turns out to be very different from the expected in ation rate some people gain and other people lose This outcome seems unfair to most people because they are either winning or losing only because something unanticipated has happened This apparently unfair redistribution is a key reason why people dislike unanticipated in ation 0 Costs of In ation I In ation may not make a nation poorer I It can redistribute income from those who do not raise their prices to those who do I It can reduce the amount of information that prices convey I In ation is a very serious problem it increases to hyperin ation 7 exceptionally high levels of in ation 100 percent or more a year 0 Nominal Interest Rate 7 The stated interest rate on a loan I Real Interest Rate 7 the nominal interest rate minus the in ation rate