Intermediate Macroeconomics
EC 302
I. Macroeconomic Measures – Additional notes
Measuring GDP, Real GDP, Real GDP growth, and Inflation
Example of apples and oranges
Suppose we have the following economy with only 2 goods.
Nominal GDP (Current Dollar GDP)
Calculate the Nominal GDP for each year: Year 0, Year 1 and Year 2
Year 0
Year 1
Year 2
P
Q
P
Q
P
Q
Apples
$.10
10
$.10
15
$.15
20
Oranges
$.10
10
$.15
10
$.20
10
Year 0:
GDP
0
= P
0
(apples) x Q
0
(apples) +
P
0
(oranges) x Q
0
(oranges)
GDP
0
= .1 x 10 +
.1 x 10 = 1 + 1 = 2
Year 1:
GDP
1
= P
1
(apples) x Q
1
(apples) +
P
1
(oranges) x Q
1
(oranges)
GDP
1
= .1 x 15 +
.15 x 10 = 1.5 + 1.5 = 3
Year 2:
GDP
2
= P
2
(apples) x Q
2
(apples) +
P
2
(oranges) x Q
2
(oranges)
GDP
2
= .15 x 20 +
.20 x 10 = 3 + 2 = 5
Nominal GDP vs. Real GDP
Change in GDP is from
change in amount of goods and services and
change in prices.
Constant Price method (before 1995) and Chain – Weighting Method (after 1995)
(You will not be expected to calculate the chainweighted real GDP on a quiz or exam,
but you should understand the rational for making the change in 1995)
Nominal GDP
Year 0:
GDP
0
= 2.0
Year 1:
GDP
1
= 3.0
Year 2:
GDP
2
= 5.0
1
EC 302 FS08
Outline I A
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 Fall '08
 Wilson
 Inflation, gross domestic product, 15 $, 2 year, 15 year, 2 2 %

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