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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 chain-weighted 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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