1. Opening Question
Based on our past discussions of taxation, and the information provided in yesterday’s documentary, what do you believe is the role of the federal government in the economy of the United States?

2. GDP Recap Y = C + I + G + (X – M) Consumer sector ( C )
Investor Sector ( I )
Government Sector ( G )
Foreign Sector (X – M )

3. Nominal vs. Real Nominal GDP Real GDP
Uses dollar values from current year
Real GDP
Uses a base year to control price
Why would someone want to use Nominal GDP? Why might someone want to use Real?

4. What do we use GDP for? Overall health of a country Labor statistics
Calculating inflation

6. Calculating Nominal/Real GDP
Nominal GDP
Price * Quantity using the price from the specific year
Real GDP
Price of base year * Quantity of each year

7. Calculating Nominal GDP
Prices and Quantities
Year
Price of
hot dogs
Quantity of
hamburgers
2008
2009
2010 $1 $2 $3
100
150
200 $4 50
Calculating Nominal GDP
($1 per hot dog × 100 hot dogs) + ($2 per hamburger × 50 hamburgers) = $200
($2 per hot dog × 150 hot dogs) + ($3 per hamburger × 100 hamburgers) = $600
($3 per hot dog × 200 hot dogs) + ($4 per hamburger × 150 hamburgers) = $1,200
Calculating Real GDP (base year 2008)
($1 per hot dog × 150 hot dogs) + ($2 per hamburger × 100 hamburgers) = $350
($1 per hot dog × 200 hot dogs) + ($2 per hamburger × 150 hamburgers) = $500

8. GDP Deflator
The measure of the level of prices of all new, domestically produced, final goods and services in an economy. Or
How price has changed for a set of products over a period of time

9. Calculating the GDP Deflator
2008
2009
2010
($200 / $200) × 100 = 100
($600 / $350) × 100 = 171
($1,200 / $500) × 100 = 240

10. Inflation What is it? Why do we care about it?
We can use GDP Deflator to find it!!!!!!

11. Finding Inflation Inflation rate The GDP deflator
Percentage change in some measure of the price level from one period to the next
The GDP deflator
Can be used to take inflation out of nominal GDP (“deflate” nominal GDP)

12. Inflation
2008 = = = 240
2009: [(171 – 100) / 100 ] * 100 = 71%
2010: [(240 – 171) / 171 ] * 100 = 40%

13. Now you try!
Please go help Uzbekistan with their Nominal GDP, Real GDP, GDP Deflator, and Inflation Rate