CAS EC 102 Final: Econ 102 Study Guide
Lecture 1:
āGross domestic product (GDP):
The īmarket valueī of all īfinal īgoods and services īproduced īwithin a country īin a year
- The last time the good is sold: final
Ex: the GDP = 2.50
Ex: Neptune oyster buys $100 worth of lobster from a fisherman: not GDP because the lobster
would be sold to the customers. Thatās price would be the GDP
Ex: I buy $150 worth of broiled lobster at NO: the GDP, final sale
Ex: Delta buys a new jet from boeing: the GDP
āMeasuring GDP
ā Process called: āNational Income Accountingā
āCalculated by the Bureau of Economic Analysis: a division of the Dept. of
Commerce
āThe expenditure Method:
- Calculates GDP by adding up the value of expenditure on all final
goods and services in the economy
āAn important identity:
āY = C + I + G + NX
ā Y= GDP - total value output
ā C= Consumption
ā I= Investment
ā G= Government purchases
ā NX= Net export (Export-Import)
āAggregate expenditure (tį»ng chi tiĆŖu): C, I, G
Ex: I buy $150 worth of broiled lobster at NO. Consumption increases utility
Ex: Delta buys a new jet from boeing: Investment, create another service
Ex: Air France buys a new jet from boeing: Net export, from another country
Lecture 2:
āPer capita GDP
āPer capita GDP =
āPotential GDP:
āItās just a guess/estimate of what a GDP would be if all factors of production (e.g.
labor and capital) had been used at their ānormalā rates
āIt is a measure of the īeconomyās capacityī to produce, not its actual production
āActual vs Potential GDP
āReal vs nominal GDP(khĆ“ng thį»±c)
āNominal GDP is the value of all goods and services measured at īcurrent īprices.
ā Assume there are N goods produced in the economy
ā2016 Nominal GDP = P^1Q^1+...+P^NQ^N of 2016
āReal GDP is the value of all goods and services measured at a īconstantī price
level
ā Say we use year 2005 as a base
ā2016 Real GDP = P^1 of 2005 * Q^1 of 2016 = $16.77 T
ā Notation for the Rest of the course:
āY = Real GDP
āP = Price Level
āP*Y = Nominal GDP
āMeasure of the Price Level (P) / The GDP Deflator:
āThe GDP Deflator
ā Ratio of nominal GDP to real GDP, time 100
ā GDP Deflator = (īNominal GDP / real GDP) * 100
Ex: GDP deflator for 2016 = (2016 nominal GDP/ 2016 real GDP) *100
= ($18.6T / 16.7T) * 100
= 111
āPrice Level vs. Inflation
āP stands for the price level (measured by CPI or GDP Deflator)
āInflation = percentage change in P
ī = %ĪP
āGDP deflator between two years:
ā
āThe GDP Deflator
āRatio of nominal GDP to real GDP, time 100
āThe consumer Price Index (CPI)
āMeasures change in the prices of things that an average consumer buys
āThe most closely watched indicator of what is happening to prices
āRelease of a new CPI number can have a big impact on financial markets
āCalculated and published by the Bureau of Labor Statistics (BLS)
āCPI number is released monthly
āReleased in the middle of the month
āUses:
ā Tracks changes in the typical household cost of living
ā Adjusts many contacts of inflation (āCOLAsā)
ā Allows comparisons of dollar amount over time
āHow the BLS constructs the CPI:
1. Survey consumers to determine composition of the typical consumerās ābasketā of
goods
2. Every month, collect data on prices of all items in the basket; compute cost of
basket
3. Choose a base year (currently an average of price of 1982 - 1984)
4. Calculate the CPI in a given month as follows:
āDisinflation vs. Deflation:
āDisinflation: is when inflation is going down so prices are still increasing, but not
so fast (vįŗ«n trĆŖn vįŗ”ch 0)
āDeflation is when prices are going down (į» dĘ°į»i vĆ”ch 0)
=> easier to pay debt
Lecture 3:
āCPI vs. GDP Deflator - two measures of inflation in the U.S
CPI
GDP Deflator
Includes only goods typically bought by
consumers
Includes all goods
Includes imported goods
Include only domestic goods
Uses a fixed basket of goods (take a
basket and price it, use the survey of what
consumers buy)
Used a changing basket of goods
āReal vs. Nominal Interest Rates:
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Document Summary
The market value of all final goods and services produced within a country in a year. The last time the good is sold: final. Ex: neptune oyster buys worth of lobster from a fisherman: not gdp because the lobster would be sold to the customers. Ex: i buy worth of broiled lobster at no: the gdp, final sale. Ex: delta buys a new jet from boeing: the gdp. Calculated by the bureau of economic analysis: a division of the dept. of. Calculates gdp by adding up the value of expenditure on all final goods and services in the economy. Y = c + i + g + nx. Aggregate expenditure (t ng chi ti u): c, i, g. Ex: i buy worth of broiled lobster at no. Ex: delta buys a new jet from boeing: investment, create another service. Ex: air france buys a new jet from boeing: net export, from another country.