GDP, Unemployment, Inflation
GDP Formula: What does I include?
1. All final purchases of machinery, equipment, and tools by business enterprises 2. All construction (factories, warehouses, residential buildings) 3. Changes in inventory
What is real GDP?
GDP that has been adjusted for inflation. It is GDP at constant prices (CONSTANT GDP).
What is nominal GDP?
GDP that has not been adjusted for inflation. It is GDP at current prices (CURRENT GDP).
What is the formula for percent change?
((New - Old)/ Old)) x 100
Inflation rate Formual (in terms of GDP deflator)
(GDP Deflator Current year - GDP Deflator Base year)/ GDP Deflator Base year) x 100
How to find LFPR
(Labor Force (employed + unemployed) / population) x 100
Real GDP Formula (in terms of GDP deflator)
(Nominal GDP/ GDP Deflator) x 100
GDP Deflator Formula
(Nominal GDP/ Real GDP) x 100
How to find UR (unemployment rate)?
(Unemployed/ Labor force (employed + unemployed)) x 100
How to find the Price Index?
(Value of current or given market basket / value of base year market basket) x 100
What is a GDP Deflator?
A price index that measures the changes in prices for all goods and services produced in an economy in a given period.
GDP Formula: What does G include?
All government spending on finished products of businesses and direct purchases of resources (including labor)
How do we know we have economic growth?
An increasing line in the business cycle.
What is the price index?
An index number showing the extent to which a price, or a 'basket' of prices, has changed over a period of time
How can you find real GDP from the base/ current year goods and services?
Base year prices X current year quantity of all goods and services produced in an economy
Expenditure Method: What is the GDP Formula + What does each stand for/ its sector?
C + I + G + Xn C - Consumer spending in the household sector I - Investment spending in the business sector G - Government spending in the government sector Xn - Net exports (export-imports) in the international sector
What's the difference between CPI and PI? (Consumer Price Index & Price Index)
CPI only focuses on prices of goods that households would consume.
When comparing GDP from one year to another, its important to do what?
Determine the inflation rate by price indexing.
GDP Formula: What does C include?
Durable consumer goods, non-durable consumer goods, and consumer expenditures for services
Why is GDP important?
It measures economic growth and well-being. It compares the size/ scope of economies with each other.
How to find Real GDP?
Nominal GDP/Price Index in hundredths
How to find Nominal GDP?
Price x Quantity Also market basket
GDP excludes
Public transfer payments (welfare), private transfer payments (secondhand sales), buying/ selling of stocks/ bonds, inputs/ intermediate goods/ services
Nominal GDP Formula (in terms of GDP deflator)
Real GDP x (GDP Deflator/ 100)
GDP Formula: What does Xn include?
The amount by which foreign spending on a nation's goods and services exceeds that nation's spending on foreign goods and services
What is GDP
The total dollar value (market value) of all final goods and services produced within a country in one year.
Why are final goods only included in GDP?
To avoid double-counting items. Intermediate goods are still counted through final goods however.
How do we know we have a recession?
Two consecutive quarters of decline in GDP. When there's a decreasing line/ trough in the business cycle (graph).
GDP Limitations
Types, quality, and distribution of items produced; unpaid household work, trade, value of leisure time
