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Good Col 1 Seller Col 2 Buyer Col 3 Trans Value Col 4 Steel Steel producer Machine producer 100,000 Steel Steel producer Car producer 300,000 Machine Machine.

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Presentation on theme: "Good Col 1 Seller Col 2 Buyer Col 3 Trans Value Col 4 Steel Steel producer Machine producer 100,000 Steel Steel producer Car producer 300,000 Machine Machine."— Presentation transcript:

1 Good Col 1 Seller Col 2 Buyer Col 3 Trans Value Col 4 Steel Steel producer Machine producer 100,000 Steel Steel producer Car producer 300,000 Machine Machine producer Car producer 200,000 Tyres Tyre producer Car producer 50,000 Cars Car producer Consumer500,000 Total value of transaction --1,150,000

2 Good Col 1 Seller Col 2 Buyer Col 3 Trans Value Col 4 Steel Steel producer Machine producer 100,000 Steel Steel producer Car producer 300,000 Machine Machine producer Car producer 200,000 Tyres Tyre producer Car producer 50,000 Cars Car producer Consumer500,000 Total--1,150,000 Value added Col 5 100, , ,000 50, , ,000

3 Good Col 1 Seller Col 2 Buyer Col 3 Trans Value Col 4 Steel Steel producer Machine producer 100,000 Steel Steel producer Car producer 300,000 Machine Machine producer Car producer 200,000 Tyres Tyre producer Car producer 50,000 Cars Car producer Consumer500,000 Total--1,150,000 Exp on final goods Col , , ,000

4 Good Col 1 Seller Col 2 Buyer Col 3 Value added Col 5 Steel Steel producer Machine producer 100,000 Steel Steel producer Car producer 300,000 Machine Machine producer Car producer 100,000 Tyres Tyre producer Car producer 50,000 Cars Car producer Consumer500,000 Total--700,000 Factor earnings Col 7 100, , ,000 50, , ,000

5 Factor earnings Col 7 100, , ,000 50, , ,000 Exp on final goods Col , , ,000 Value added Col 5 100, , ,000 50, , ,000 Trans Value Col 4 100, , ,000 50, ,000 1,150,000 GDP

6 GNP MP GDP MP NNP MP NNP FC Income from self employment Net factor incomes from abroad Depreciation Indirect Taxes Rental Income Profits Wages & salaries Def of GNPDef of GDPDef of NNP MP Def of NIFactor earnings NFI can be negative or positive, i.e. GDP can be greater or less than GNP

7 Real GDP year a = Nominal GDP year a x Price Index base year Price Index year a Example Nominal GDP was $150 billion in 1985 & $300 billion in ASSUME that prices have risen by 50% over the period. Real GDP in 1994 measured in 1985 prices: = $300 billion x 100/150 = $200billion

8 Year 1Year 2 Apples produced Chicken produced cost per apple Rs 24 cost per chicken Rs 46 Hypothetical economy

9 Nominal GDP in year1 = (100 x 2) + (100 x 4) = 600 Nominal GDP in year2 = (150 x 4) + (140 x 6) = 1440 Growth rate in nominal GDP = 1440 – 600 = 140% 600 Year2 price index = 150 x x 4 = Year2 price index = 150 x x 6 = Current year price index 290 at Year2 prices at Year1 prices

10 GDP deflator: 2.966X = x100 X = 167.4% which is the price level in percentage terms prevailing in the current year (Year2) relative to the price level of Year1 Real GDP = 1440 x 100 = Growth rate = 860 – 600 = 43% 600


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