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AP Econ GDP Price Indexes, National Income and Net Domestic Product Page 122 of New AP Book.

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Presentation on theme: "AP Econ GDP Price Indexes, National Income and Net Domestic Product Page 122 of New AP Book."— Presentation transcript:

1 AP Econ GDP Price Indexes, National Income and Net Domestic Product Page 122 of New AP Book

2 Problem 8 Use data pg 122 Determine GDP by both methods then NDP Look at Data pg 122 GDP Method GDP=C+I+G+Net Exports (Exports-Imports) C=245 I=Net Private Domestic Inv + Detpreciation =33+27 G=72 Net Exports= =$388

3 Problem 8 Use data pg 122 Determine GDP by both methods then NDP Income Approach (Add together) GDP = Compensation of employees + Rents + Interest + Proprietors income + Corporate profits (includes Corporate income taxes + dividends + undistributed corporate profits) + Indirect business taxes* + Depreciation (consumption of fixed capital)* + Net foreign factor income *Note: Two adjustments must be made to get GDP: *Indirect taxes minus subsidies are added to get from factor cost to market prices. *Depreciation is added above to get from Net Domestic Product to Gross Domestic Product

4 Problem 8 Wages, salary, supplemental=$223 Rents=$14 Interest=13 Proprietor Income=33 Corporate Profits= Sum of next three Corporate Taxes=$19 Dividends= $16 Und. Corp Profits=21 Indirect Business Taxes-Subsidies =$18 Depreciation of Capital=$27 Net Foreign Factor Income=$4 =$388

5 NDP Net Domestic ProductGDP minus Depreciation =361

6 National Income NDP minus statistical discrepancy and also net foreign factor income=NI =357

7 Problem 11 Question: Suppose in 1984 total output of a single good economy was 7000 buckets of chicken. Also price of each bucket was $10. Also assume that 22,000 buckets of chicken were produced at $16 in Determine GDP price index for 1984 use 2000 as base year What % did inflation rise between 1984 and 2000? Use 2 methods listed in Table 6.6 to determine GDP in 1984 and 2000

8 Determine GDP price index for 1984 use 2000 as base year Base year quantity Base year price Base year expenditure Current year price Current year expenditure Chicken22,000$1622,000X16= $352,000 (Nominal GDP for the year) 1022,000X10= $220,000 ProcessBase year index is 100 ($352,000 divided by $352,000)*100 Index # for 1984 is 62.5 ($220,000 divided by $352,000)*100

9 What % did inflation rise between 1984 and 2000? Easy! Since you are working with the base year you only need to know the difference between the two numbers! =37.5%

10 Use 2 methods listed in Table 6.6 to determine GDP in 1984 and 2000 Method One 1. Find Nominal GDP for the year 1984 Nominal GDP= $10 per bucket*7000 Buckets= $70, Compute GDP price index (62.5) 3. Real GDP? Divide each years Nominal GDP by that year price index $70,000/.625=$112, GDP Real and Nominal Same since it is base $352,000


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