ECON 201 Lecture Notes - Lecture 8: Gdp Deflator
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Table 24-7. The table below applies to an economy with only two goods Ć¢ĀĀ hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs.
Year | Price of hamburgers | Price of hot dogs |
2009 | $5 | $3 |
2010 | 5.50 | 3.30 |
2011 | 5.61 | 3.63 |
Refer to Table 24-7. Between 2009 and 2011, the cost of living increased by
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The CPI is more commonly used as a gauge of inflation than the GDP deflator is because
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Real versus nominal GDP
Consider a simple economy that produces two goods: apples and oranges. The following table shows the prices and quantities for the goods over a three-year period.
Year |
Apples Ā |
Oranges Ā |
||
---|---|---|---|---|
Price | Quantity | Price | Quantity | |
(Dollars per apple) | (Number of apples) | (Dollars per orange) | (Number of oranges) | |
2010 | 1 | 120 | 1 | 195 |
2011 | 2 | 130 | 4 | 195 |
2012 | 4 | 130 | 4 | 145 |
A. Use the information from the previous table to fill in the following table.
Year | Nominal GDP | Real GDP | GDP Deflator |
---|---|---|---|
(Dollars) | (Base year 2010, Dollars) | ||
2010 | Ā | Ā | Ā |
2011 | Ā | Ā | Ā |
2012 | Ā | Ā | Ā |
Ā
B. From 2011 to 2012, change in nominal GDP is __________, and real GDP is ________.
Ā
C. The inflation rate in 2012 was ____________.
Ā
D. Why is real GDP a more accurate measure of an economy's production than nominal GDP?
a. Real GDP does not include the value of intermediate goods and services, but nominal GDP does.
b. Real GDP includes the value of exports, but nominal GDP does not.
c. Real GDP is not influenced by price changes, but nominal GDP is.
1. Provide the formula for the expenditure approach to GDP accounting and include an example of each category of spending.
2. Suppose a consumer buys 10 units of good X and 20 units of good Y every year. The following table lists the prices of goods X and Y in the years 2005-2007. Assume that these two goods constitute the typical market basket. Calculate the price indices for these years with 2005 as the base year. Comment on the inflation picture for these years.
Year |
Good X |
Good Y |
2005 |
$3 |
$6 |
2006 |
4 |
7 |
2007 |
4.5 |
7.5 |
3. Using the expenditure approach, calculate GDP using the following data.
Item |
Amount in dollars (billions) |
Consumption |
7,600 |
Consumption of Durable Goods |
1,600 |
Consumption of Non Durable Goods |
2,800 |
Consumption of Services |
3,200 |
Investment |
2,750 |
Fixed Investment |
1,000 |
Government purchases of Goods & Services |
1,675 |
Government Transfer Payments |
450 |
Exports |
750 |
Imports |
1,600 |
GDP Equals |
Ā |
4. a. What is the importance of measuring per capita GDP?
b. Why nominal GDP can be misleading?