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Published byChristal Quinn Modified over 9 years ago
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What Part of GDP? (C, G, I or Not counted) 1.Chris buys 10 gallons of Rocky Road Ice Cream 2.Trenton buys 50 new police cars 3.Microsoft builds a new factory in the Philippines 4.Alice builds a new house in Phoenix 5.Jerry buys 100 shares of Microsoft stock 6.Loretta buys a case of beads with which she will make necklaces to sell 7.Sarah buys a new necklace from Loretta 8.Ford hires 100 new autoworkers
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Comparing GDP across Time and Space Real v. Nominal GDP Per Capita GDP
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Comparing GDP Over time, prices in an economy tend to rise As a result the value of a dollar (its purchasing power) tends to decline Over many years, what a dollar can buy can change dramatically e.g, $1.00 from 1980 would buy as much as $2.89 today! How do we account for this?
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Nominal v. Real GDP Nominal GDP – the value of GDP expressed in dollars valued in that particular year – Does not account for changes in price level – Current Dollars Real GDP – The value of GDP expressed in dollars converted to a common year (base year) – Accounts for inflation – Constant Dollars
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Nominal v. Real GDP How is this achieved? – Reporting current transactions as if they were conducted in base year dollars OR GDP Deflator – An index calculated to convert current dollars into constant dollars (base year = 1) – Real GDP = Nominal GDP x Deflator
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GDP Exercise 20002010 Quantity of Apples3,0004,000 Price of Apples$0.20$0.30 Quantity of Oranges2,0003,000 Price of Oranges$0.40$0.50 1.Calculate Nominal GDP in both years. 2.Calculate Real GDP for both years in constant dollars based on the other year.
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Comparing GDP Across Space Purchasing Power Parity – Converts GDP to “dollars” that represent equivalent purchasing power Per Capita GDP – GDP divided by population – Measure of standard of living
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