In Class Lecture Notes
Output and Growth
-The total market value of all final goods and services produced in an economy in a year.
-What it doesn’t cover
-“Under the table” transactions
-Black market activities
Main Categories of GDP
-Consumption (C) 60%-70%
-Investment (I) New physical capital goods, ~15%
-Government Expenditures (G) ~18% , things the government buys from businesses in the US
-Net Exports (NX) Exports minus Imports (-3%)
-GDP = C+I+G+NX
*Growth Formula (GDP 2012 GDP 2011/(GDP 2011 all of this times 100
*GDP can also be calculated by summing up all (price x quantity)
GDP can increase from a price increase and/or an output increase.
-Uses current year prices times the quantity of items to determine the GDP
-Uses a base year, that is determined a stable economic year, for prices to times by the quantity
to determine the GDP
-Measured by the % change of a price index
-Price Indexes -GDP deflator Nomial GDP divided by Real GDP; this can have either a base 1 or base 100
which are used interchangeably by different people.
-Consumer Price Index Nominal Consumer Cost/Real Consumer Cost
-Real Wage=Nominal Wage divided by Price Index
Real Wage is just a number to determine what current wages would be if they had
grown equal to the rate of inflation. It is sometimes used to determine current minimum wages but we
have not currently kept up with the real wage.
*Inflation Calculation (Index 2012– Index 2011/(Index2011) times 100
*Real Rate (Nominal Rate)-(Inflation Rate)