Chapter 5 cheat sheet

# Chapter 5 cheat sheet - Chapter 5 cheat sheet GDP growth...

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Chapter 5 cheat sheet GDP growth rates One of the main economic statistics that is reported by the media is the GDP growth rate. First, when they say that they mean Real GDP growth. Second, growth rates are always between two consecutive years. See below for converting nominal to real GDP. 𝐺𝐺𝐺𝐺𝐺𝐺 𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔ℎ 𝑔𝑔𝑎𝑎𝑔𝑔𝑎𝑎 𝑡𝑡 = ( 𝑅𝑅𝑎𝑎𝑎𝑎𝑅𝑅 𝐺𝐺𝐺𝐺𝐺𝐺 𝑡𝑡 − 𝑅𝑅𝑎𝑎𝑎𝑎𝑅𝑅 𝐺𝐺𝐺𝐺𝐺𝐺 𝑡𝑡−1 ) 𝑅𝑅𝑎𝑎𝑎𝑎𝑅𝑅 𝐺𝐺𝐺𝐺𝐺𝐺 𝑡𝑡−1 × 100 Real GDP (billions) Growth rate 1974 5,396.0 -- 1975 5,385.4 -0.20 2014 15982.3 -- 2015 16397.2 2.60 𝐺𝐺𝐺𝐺𝐺𝐺 𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔ℎ 𝑔𝑔𝑎𝑎𝑔𝑔𝑎𝑎 1975 = (5,385.4 5,396.0) 5,396.0 × 100 = 0.20 𝑝𝑝𝑎𝑎𝑔𝑔𝑝𝑝𝑎𝑎𝑝𝑝𝑔𝑔 𝐺𝐺𝐺𝐺𝐺𝐺 𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔ℎ 𝑔𝑔𝑎𝑎𝑔𝑔𝑎𝑎 2015 = (16397.2 15982.3 ) 15982.3 × 100 = 2.60 𝑝𝑝𝑎𝑎𝑔𝑔𝑝𝑝𝑎𝑎𝑝𝑝𝑔𝑔 Yes, the growth rate in 1975 is negative. This was a period of recession in the US. Growth in 2015 was a fairly healthy 2.60 percent. Price Indexes . A price index is a measure of the price level. The base year is price index is equal to 100. Since prices tend to increase over time, a price index after the base year will typically be greater than 100 and a price index before base year will be less than 100. For example, the official Bureau of Labor Statistics CPI has a base year of 1983-1984 (technically a 2 year average, but this is not important). The CPI for 1975 is 53.80 and the CPI for 2015 is 237.02. There are different price indexes depending on what they are used for, but the two main ones we will use are the GDP deflator and the Consumer Price Index.

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