L1 - Measuring macroeconomy Chapter 2, book 1, and Chapter...

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Unformatted text preview: Measuring macroeconomy Chapter 2, book 1, and Chapter 5, book 2 Aggregate output Price level 1 Nominal GDP Nominal GDP is the current dollar (or euro, etc.) value of all the final goods and services that an economy produces during a specific period such as year or quarter. 2 The current-dollar valuethe value is based on the current market prices How to compare nominal GDP of different years? How about goods and services not traded market? Final not intermediate (avoid double counting) Bread is final; Flour to produce bread is intermediate. Newly produced A house built in 1999 contributes to year 1999 GDP; A house built in 1990 does not. 3 Computing nominal GDP Multiply the quantity of each final good (or service) by the current price of the good (or service), and add the numbers up. Example: Two final goods in an economy in 1990, apple and banana. Q of Apple in 1990: 20; P of Apple in 1990: 2 dollars Q of Banana in 1990: 10; P of Banana in 1990: 3 dollars Nominal GDP in 1990= 20 2 + 10 3 = 70 dollars 4 Real GDP Real GDP is the value of all the final goods and services that an economy produces during a specified period in terms of dollar of a base year. Nominal GDP in year 2007 is in year 2007 dollar. Real GDP in year 2007 is in the base year dollar. The base year can be arbitrary; but it must be fixed for comparison....
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L1 - Measuring macroeconomy Chapter 2, book 1, and Chapter...

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