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ECON 2400 Lecture Notes - Lecture 5: Final Good, Canadian Dollar, Gdp Deflator

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School
York University
Department
Economics
Course
ECON 2400
Professor
Arman Mansoorian

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Document Summary

Recall: read gdp is the gdp at base year price. Gdp at current (2013) prices is called nominal gdp for 2013. Gdp at base year (2011) prices is called real gdp/ gdp at constant prices/dollar. Hence (price for gdp/gdp deflator) =nominal gdp/real gdp (midterm) Gdp deflator is an index of the prices of goods/services that were produced in the economy. Problem when using gdp deflator: notice gdp deflator is price of all goods and services produced in the economy. Average canadian only interested in prices of goods and services they consume (cpi): some of the goods produced are not consumed by household. They may be exported or purchased by firms or government: some households may purchase imported goods. Hence cpi is more important than gdp deflator for household: how to calculate cpi. Statistics canada makes a basket of expenditure and keeps it fixed within the same base year period.

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Related Questions

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

 

Oranges

 
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      
2011      
2012      

 

B. From 2011 to 2012, change in nominal GDP is __________, and real GDP is ________.

 

C. The inflation rate in 2012 was ____________.

 

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.

4. Suppose the economy of Stockton produces four goods: strawberries, ice cream, sushi, andcoolers. However, consumers only purchase strawberries, ice cream, and sushi. Coolers are a final good, but are only used by ice cream trucks to store ice cream. The total production of all final goods is given in the table below: Year Strawberries Ice Cream Quantity Price ($ per unit) Quantity Price ($ per unit) 2010 8 $4 10 $2 2011 9 $5 14 $2 2012 10 $6 18 $3 Year Quantity Sushi Price ($ per unit) Coolers Quantity Price ($ per unit) 2010 12 $3 1 $12 2011 12 $3 2 $8 2012 15 $4 8 $2 (a) Using 2010 as the base year, calculate the value of the CPI in each year, and thencalculate the rate of inflation based on the CPI for all years (i.e., inflation rate from 2010 to 2011 and from 2011 to 2012). (b) Keeping in mind that the GDP deflator is a fixed-prices measure (fixed in the base year),calculate nominal GDP and real GDP for each year using 2010 as the base year. Using the expression for the GDP deflator, calculate the value of the GDP deflator in each year, then calculate the rate of inflation based on the GDP deflator for all years (i.e., inflation rate from 2010 to 2011 and from 2011 to 2012). (c) The following table gives the average nominal wage (in thousands) of workers in Stockton. In which year did they have the highest real wage?

Consider an economy that produces and consumes bread and automobilies , In the following table are data for two different years

YEAR 2000 YEAR 2000 YEAR 2010 YEAR 2010
GOOD QUANTITY PRICE QUANTITY PRICE
AUTOMOBILES 100 $50000 120 $60.000
BREAD 500.000 $10 400.000 $20

a)Using the year 2000 as the base year ,compute the following statistics for each year : nominal GDP ,real GDP ,the implicit price deflator for GDP ,and a fixed-weight price index such as the CPI

b)How much have prices risen between 2000 and 2010? Compare the answers given by the Laspeyres and Paasche price indexes. Explain the difference

c) Supopose you are a senator writing a bill to index Social Sewcurity and federal pensions. That is ,yout bill will adjust these benefits to offset changes in the cost of living. Will you use the GDP deflator or the CPI? Why?