National Saving GDP - National Saving Income and spending...

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National Saving Income and spending approaches provide a way to measure national saving (S) Definition: for a nation S = Y - C - G The spending identity shows that Y = C + I + X + G Thus we get Y - C - G = I + X which implies S = Y - C - G = I + X Or S - I = X
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Real vs. Nominal GDP Nominal GDP is a misleading measure of how output is changing because it does not correct for inflation. Suppose we have information about the price and output for final goods and services for two adjacent years. In the example the two adjacent years are 1997 and 1998. This economy produces three goods, apples, bananas, and corn.
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1997 1998 Price Quantity Price Quantity Apples $0.50 6 $0.40 11 Bananas $0.30 7 $1.00 4 Corn $0.70 10 $0.90 12 Nominal GDP $12.10 $19.20 In 1997, nominal GDP was $12.10. In 1998, nominal GDP was $19.20. Notice that nominal GDP increased by almost 60 percent. However, the volume of apples increased by 83 percent , the volume of bananas fell by 43 percent , and the volume of corn increased by only 20 percent . The reason for the difference between the change in GDP and the changes in physical output is that prices as well as output changed between 1997 and 1998. In other words, changes in the market value of output, (because the unit prices changed) which is what GDP measures, are not the same as changes in the physical value of output. If we want to use GDP to compare economic activity over time, then we need a method to exclude the effects of price changes. The value of GDP corrected for price changes is called real GDP.
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Real Gross Domestic Product (real GDP): a measure of the value of all the final goods and services newly produced in a country during some time period, adjusted for inflation. By correcting for inflation, real GDP provides a better measure of what is happening to output. This is why real GDP is used to assess how the economy
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This note was uploaded on 01/31/2010 for the course ACCOUNTING 30516 taught by Professor Whoever during the Spring '09 term at American Academy of Art.

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National Saving GDP - National Saving Income and spending...

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