ECON 102 Chapter Notes - Chapter 2: Real Change, Weighted Arithmetic Mean

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viridianwildebeest744

3 May 2020

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Price index = weighted average of prices of a set of g&s produced in economy over period of time, aka measure price level. Inflation rate = rate of change in price level from one period of time to another. Nominal change in gdp = change in gdp due to price level change. Real change in gdp = increase in actual quantity of g&s sold. Real gdp measured using base year prices and current year quantities. Nominal gdp measured using current year prices and quantities. To measure price level: implicit gdp price deflator, cpi. Implicit gdp price deflator = nominal gdp/ real gdp x100. > x100 normalises price deflator to 100 in the year we are choosing nominal gdp = real gdp. Current year cpi = cost of base year quantities at current prices/ cost of base year quantities at base year prices x100. These 2 price level tools can give very different inflation rates.

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
Year	(Dollars)	(Base year 2010, Dollars)	GDP Deflator
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.

lilacpig169

Consider a simple economy that only produces two goods; apples and oranges. The following table shows prices and quantities over a 3 year period.

	Price of	Quantity of	Price of	Quantity of
YEAR	Apples	Apples	Oranges	Oranges
2012	2	20	1	10
2013	3	24	2	12
2014	4	30	3	20

Use the information from the previous table to fill out the following table:

		Real GDP	GDP
YEAR	Nominal GDP ($)	(The base year 2012)($)	Deflator
2012
2013
2014

Choose one from each:

From 2013 to 2014, nominal GDP (increased or decreased) and real GDP (increased or decreased).

The inflation rate in 2014 was (10%, 40.6%, 29.4%, -28.9%, or -9.1%).

Why is real GDP a more accurate measure of an economyâs production than nominal GDP?

tancattle526

Consider an economy that produces only chocolate bars. In year 1, the quantity produced is 3 bars and the price is $4. In year 2, the quantity produced is 4 bars and the price is $5. In year 3, the quantity produced is 5 bars and the price is $6.

Using year 1 as the base year, compute nominal GDP, real GDP, and the GDP deflator for each year.

Year	Nominal GDP	Real GDP	GDP Deflator
Year	(Dollars)	(Dollars)	GDP Deflator
Year 1
Year 2
Year 3

The percentage growth rate of real GDP from year 2 to year 3 is. ______%

The inflation rate as measured by the GDP deflator from year 2 to year 3 is. ______%

greentiger355

ECON 102 Chapter Notes - Chapter 2: Real Change, Weighted Arithmetic Mean

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