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Lecture 7

Econ 105 Lecture 7 Jan 28th.doc

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Simon Fraser University
ECON 105
Brian Krauth

Econ 105, Lecture 7 Jan 28th Chapter 5: Measuring a nation's income ***** see notebook for table + calculations***** ( 1 ) **Notice that some of this growth is due to increased production and some due to increased prices. To isolate production growth we se a statistic called real GDP. -Nominal GDP = value goods at current prices -Real GDP = value goods at constant prices from some base year. In our example, let's choose 2010 as our base year. -the base year is an arbitrary choice. Base year is adjusted every couple of years. Real GDP in 2010 = 1000 x 3 + 100 x 70 = 10000 **Notice that in the base year, real GDP = nominal GDP real GDP in 2011 = 1050 x 3 + 110 x 70 = 10850 Growth rate of real GDP = ((10850 - 10000)/10000) x 100% = 8.5% Some issues with real GDP: 1) Relative prices change, a lot. - In 1910 domestic servants cheap ; silverware cheap ; cars very expensive. - When there are a lot of something, it gets cheap (demand curves slope down) - Things that are expensive in the base year and are cheap now, they are going to be over-valued. 2) Ne
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