ECON 1BB3 Chapter Notes - Chapter 6: Market Basket, Savings Account, Gdp Deflator

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limedonkey197

22 Jun 2016

School

McMaster University

Department

Economics

Course

ECON 1BB3

Professor

Bridget O' Shaughnessy

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ECON 1BB3 Full Course Notes

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Consumer price index (cpi): a measure of overall cost of the goods and services bought by a typical consumer. Core inflation: a measure of underlying trend of inflation. Indexation: the automatic correction of a dollar amount for the effects of inflation by law or contract. Nominal interest: the interest rate usually reported without a correction for the effects of inflation. Real interest rate: the interest rate corrected for the effects of inflation. Video 3-4: separating out changes in price and changes in output. Gdp market value of all final goods and services produced in a country in a given time. Calculated by adding up [price x quantity] over all goods and services produced in a given year. Gdp rises as price and or quantity rise. Real gdp only goes up if we produce more. Nominal gdp goes up if more is produced or if price goes up. When real gdp and nominal gdp curves get farther apart price is increasing.

Related Questions

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

(i) Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.

(ii) Real GDP is not influenced by price changes, but nominal GDP is.

(iii) Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.

silvermule348

Real versus nominal GDP

Consider a simple economy that produces two goods: apples and muffins. The following table shows the prices and quantities of the goods over a three-year period.

Year	Apples		Muffins
	Price	Quantity	Price	Quantity
	(Dollars per apple)	(Number of apples)	(Dollars per muffin)	(Number of muffins)
2008	1	150	2	160
2009	2	135	4	230
2010	3	110	4	165

Use the information from the previous table to fill in the following table.

Year	Nominal GDP	Real GDP
Year	(Dollars)	(The base year 2008, dollars)
2008
2009
2010

1. From 2009 to 2010, nominal GDP (decreased or increased), and real GDP (decreased or increased).

2. Why is real GDP a more accurate measure of an economy's production than nominal GDP?

A. Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.

B. Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.

C. Real GDP is not influenced by price changes, but nominal GDP is.

magentamarten240

Measures of Inflation The GDP deflator is the broadest, most inclusive measure of change in the country's price level since it includes all final goods and services produced and sold. But the GDP deflator is not used by the government or economists as the benchmark measure of inflation; instead, the consumer price index (CPI) is used to determine changes in the cost of living. What is the shortcoming of the GDP deflator as a measure of inflation for households, and why is the CPI considered to be a more useful measure?

greycoyote29

ECON 1BB3 Chapter Notes - Chapter 6: Market Basket, Savings Account, Gdp Deflator

ECON 1BB3 Full Course Notes

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