Class Notes (807,350)
ECON 330D1 (20)
Lecture 2

# Econ 330 Lecture 2 .docx

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School
McGill University
Department
Economics (Arts)
Course
ECON 330D1
Professor
Daniel Barczyk
Semester
Fall

Description
Econ 330- Lecture 2 9/11/2012 10:41:00 AM Nominal GDP is output measured at current prices GDP- Price of Melons * Quantity of melons + price of grapes * Quantity of grapes Real GDP is output measured using a constant set of prices We need to use base year prices E.G. chooses pries in 2010 to compute real GDP in 2010, 2011, 2012 Real GDP 2010= 2010 prices of melons * 2010 quantity of melons + 2010 price of grapes * 2010 quantity of grapes = nominal GDP as cause yrs the same Real GDP 2010= 2010 prices of melons * 2011 quantity of melons + 2010 price of grapes * 2011 quantity of grapes This is where the base year is 2010 GDP deflator- nominal GDP/ Real GDP it reflects what’s happening to the overall level of prices in the economy. Consider the economy with a single bread if P= price of bread and Q= quantity sold then nominal GDP = P *Q. Real GDP is quantity of bread produced using the price of same base year = Pbase * Q. The GDP deflator is simply P *Q/Pbase * Q= P/Pbase Using the GDP deflator we can separate nominal GDP into a part which measures quantities ( Real GDP) and the other measures prices (the GDP deflator) nominal GDP = Real GDP *GDP Real GDP = Nominal GDP/ GDP deflator Example From PROBLEM 4 OF CHAPTER 2 YR 1 GOOD Q P Computers 20 \$1000 Bread 10000 \$1 YR 2 GOOD Q P Computers 25 \$1500 Bread 12000 \$1.10 Nominal GDP 1= 20 *1000 + 10000 * 1= \$30,000 Nominal GDP 2= 25 *1500 +12000 *1.10= \$50,700 Growth = 50,700-30,000/30,000 * 100= 69% B, Calculate GDP using year 1 as the base year  RGDP1/1 = nominal GDP1 = 30,000  RGDP ½= 25 * 1000 +12,000 *1= 37,000 Growth = 23% C, Use Year 2 as base year  RGDP2/1= 20 *1500 +10,000 *1.10= 41,000  RGDP 2/2= 50,700
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