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Shortcomings of GDP Leisure Time Improved Product Quality Trade-offs on the Environment Distribution of Output.

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Presentation on theme: "Shortcomings of GDP Leisure Time Improved Product Quality Trade-offs on the Environment Distribution of Output."— Presentation transcript:

1 Shortcomings of GDP Leisure Time Improved Product Quality Trade-offs on the Environment Distribution of Output

2 What makes GDP go up? 1.A country produces more goods and services 2.Goods and services cost more 3.Nominal GDP  Current output x current prices 4. Real GDP  Current output x a base year price (price becomes constant) 5. To measure GDP at constant prices one needs a couple of things

3 1. A Base Year The year with which other years are compared to when using a price index 2. Price Index A measurement that shows how the average price of a group of goods changes over time $55 June $62 October

4 Let’s take inflation out of GDP The GDP Deflator is a price index number GDP Deflator = price of goods in a specific year price of goods in the base year x100 Nominal GDP Real GDP x 100 = GDP Deflator

5 This would also make sense… Nominal GDP Index # = Real GDP

6 Assume the following: Year houses built price nominal GDP Real GDP GDP Deflator $100, $115, $125,000 Can you calculate Nominal GDP, Real GDP, and the Deflator? Not yet. “01 is the base year $300,000 x = $345, /345

7 Year houses built price nominal GDP Real GDP GDP Deflator x $100,000 $300,000 $345, $115, $125,000

8 Year houses built price nominal GDP Real GDP GDP Deflator x $100,000 $300,000 $345, x $115,000 = $460,000 $460, $125,000

9 Year houses built price nominal GDP Real GDP GDP Deflator x $100,000 $300,000 $345, x $115,000 = $460,000 $460, x $125,000 = $625,000 $575,


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