1. Ch.22 GDP Worksheet 1-calculations
Year Production of X Price X $5
$10
$20
Nominal GDP (P x Q) Real GDP (current year Q x base yr P)
$ $100
$ $100
$ $100

2. Economic Growth? What does it tell us when NGDP increases?
Could be increase in production
Could be increase in price
Could be combination of production and price
What does it tell us when RGDP increases?
…b/c P is held constant to base year
….increase is due only to increase in Q
….= ECONOMIC GROWTH

3. Year Production of X Price X 2000 20 $5 2001 20 $10 2002 20 $20$5
$10
$20
Nominal GDP (P x Q) Real GDP (current year Q x base yr P)
$ $100
$ $100
$ $100
Conclusions??? Economic growth? Price Levels?
There was no economic growth.
There was only an increase in price level

4. #2
Year P soda Q soda P jeans Q jeans NGDP RGDP
$ $ a= $ b=$700
$ $ c= $ d= $720
Mistake – avoid looking at each individual good – this is a model for the entire economy
ex: conclude the economy grew for soda but not for jeans
e. Value of GDP Deflator in 2000?
NGDP / RGDP x 100 : always 100 in base year
f. Value of GDP Deflator in 2001?
770/720 x 100 = 107
GDP = $$$$$$ Deflator is NOT $$ nor %% …IS index based on 100

5. g. from 2000-2001: prices rose approximately what percentage?
Compare GDP deflators – measure the change in price level
2nd -1st / 1st
/100 = 7%
h. was the increase in NGDP from mostly due to an increase in real output or prices?
NGDP rose from $700 to $770 = 10% increase
Increase in real output = RGDP
2000=$ = $ % (3%)
Increase in prices = Deflator = 7%
Conclude – 10%increase in NGDP was MOSTLY due prices (7%) vs. output (3%)

6. Evaluate Was there economic growth? Yes … RGDP…. Or Real output…. Or
……the economy …….
Grew at a 3% rate
The growth rate of the economy was 3%
….”normal growth” = 3% per year – long term trend since the 1950’s

7. ………but……… Price level or inflation increased by 7%
…..not good to have inflation outpace output
“normal” inflation is 1%-2%

8. #3 Complete Table Year NGDP RGDP GDP Deflator 1. ----- $100 100$
2. $
$150 $
Math : $x/$100 x = NGDP $100
Logic:
Math: $120 /$x x100 = RGDP = 100
………see NGDP increase by 20% and Deflator increase by 20%.....so RGDP must not change
Math: $150/$125 x 100 = 120
see NGDP increase 25% and RGDP increase 25% ..then the increase is all due to output (RGDP) and no price increase…so….Deflator does not change

9. Formative Assessment What does it mean to have economic growth?
What is the difference between Real GDP and Nominal GDP ?