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Intro to Price index. refer to the following price and output data over a five-year period for an economy that produces only one good. Assume that year.

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Presentation on theme: "Intro to Price index. refer to the following price and output data over a five-year period for an economy that produces only one good. Assume that year."— Presentation transcript:

1 Intro to Price index

2 refer to the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Units of Price Nominal Real Price Year output per unit GDP GDP Index 1 16 $ Compute –(a) nominal GDP for years 1 thru 5 –(b) real GDP for year 4 –(c) if year 2 is the base year, give the price index for years 1 through 5

3 The formula Nominal means current Nominal GDP = Price X Output

4 refer to the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Units of Price Nominal Real Price Year output per unit GDP GDP Index 1 16x $2 $ x x x x Compute –(a) nominal GDP for years 1 thru 5 –(b) real GDP for year 4 –(c) if year 2 is the base year, give the price index for years 1 through 5

5 refer to the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Units of Price Nominal Real Price Year output per unit GDP GDP Index 1 16 $2 $ Compute –(a) nominal GDP for years 1 thru 5 –(b) real GDP for year 4 YIIIIKES!!!!!!!!!!! –(c) if year 2 is the base year, give the price index for years 1 through 5

6 refer to the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Units of Price Nominal Real Price Year output per unit GDP GDP Index 1 16 $ / Compute –(a) nominal GDP for years 1 thru 5 –(b) real GDP for year 4 –(c) if year 2 is the base year, give the price index for years 1 through 5

7 refer to the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Units of Price Nominal Real Price Year output per unit GDP GDP Index 1 16 $ / Compute –(a) nominal GDP for years 1 thru 5 –(b) real GDP for year 4 –(c) if year 2 is the base year, give the price index for years 1 through 5

8 The formulae Price Index = nominal price / base year price (times 100) in this case (3/3 = 1) X 100 = 100 Real GDP = nominal GDP / the index (in hundreds)

9 refer to the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Units of Price Nominal Real Price Year output per unit GDP GDP Index 1 16 $ / Compute –(a) nominal GDP for years 1 thru 5 –(b) real GDP for year 4 –(c) if year 2 is the base year, give the price index for years 1 through 5

10 refer to the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Units of Price Nominal Real Price Year output per unit GDP GDP Index 1 16 $2/ / / / /3 Compute –(a) nominal GDP for years 1 thru 5 –(b) real GDP for year 4 –(c) if year 2 is the base year, give the price index for years 1 through 5

11 refer to the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Units of Price Nominal Real Price Year output per unit GDP GDP Index 1 16 $2/ / / / /3 200 Compute –(a) nominal GDP for years 1 thru 5 –(b) real GDP for year 4 –(c) if year 2 is the base year, give the price index for years 1 through 5

12 refer to the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Units of Price Nominal Real Price Year output per unit GDP GDP Index 1 16 $2/3 $ / / / / Compute –(a) nominal GDP for years 1 thru 5 –(b) real GDP for year 4 –(c) if year 2 is the base year, give the price index for years 1 through 5

13 refer to the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Units of Price Nominal Real Price Year output per unit GDP GDP Index 1 16 $2/3 $32/.666 $ /3 60/ /3 120/ /3 180/ /3 240/2 200 Compute –(a) nominal GDP for years 1 thru 5 –(b) real GDP for year 4 –(c) if year 2 is the base year, give the price index for years 1 through 5

14 refer to the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Units of Price Nominal Real Price Year output per unit GDP GDP Index 1 16 $2/3 $32/.67 $ /3 60/ /3 120/ /3 180/ /3 240/ Compute –(a) nominal GDP for years 1 thru 5 –(b) real GDP for year 4 –(c) if year 2 is the base year, give the price index for years 1 through 5

15 Did I use a calculator? No I cheated, or used a short cut while the index is 166.6, in hundreds it is 1.66 so the fraction value is 5/3 - I just inverted and multiplied 180 X 3/5 3 X 180 = 540 and 540 / 5 = 180

16 refer to the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Units of Price Nominal Real Price Year output per unit GDP GDP Index 1 16 $2/3 $32/(2/3) $ /3 60/ /3 120/(4/3) /3 180/(5/3) /3 240/ Compute –(a) nominal GDP for years 1 thru 5 –(b) real GDP for year 4 –(c) if year 2 is the base year, give the price index for years 1 through 5


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