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Lecture 10 Notes

# Lecture 10 Notes - ECN 211 Macroeconomic Principles...

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03/03/10 1 ECN 211 Macroeconomic Principles L10: National Income Accounting (Nominal Vs  Real).

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03/03/10 2 Nominal and Real Measures of GDP Interested in  real values-  how much  actual  goods and  services the economy has produced. Nominal values tell us very little – Has GDP increased because output has increased or  because prices have increased, or both?? – In simplistic terms GDP=P(Q)
Nominal Vs Real Nominal GDP … nominal GDP measures output using the  current year  price  of goods and services. Real GDP …  real GDP is adjusted for changing price levels – Uses  constant year price  – From a “base year” 03/03/10 3

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03/03/10 4 Base Year … the year against which other years are measured – When calculating real GDP the  base years prices  are  used to calculate  real GDP for all years  – e.g. if 1996 is the base year – Real GDP in 2007 1996 prices (base years prices)  and 2007 quantities – Nominal GDP in 2007 :   2007 prices (current prices)  and 2007 quantities
03/03/10 5 Example Year Price of Hot  dogs Quantity of hot  dogs Price of  Hamburgers Quantity of  hamburgers 2005 \$1 100 \$2 50 2006 \$2 150 \$3 100 2007 \$3 200 \$4 150 Nominal GDP yearly growth 2005 = \$1x100+\$2x50= \$200 - 2006 = \$2x150+\$3x100=\$600 200% 2007 = \$3x200+\$4x150=\$1,200 100%

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03/03/10 6 Example Year Price of Hot  dogs Quantity of hot  dogs Price of  Hamburgers Quantity of  hamburgers 2005 \$1 100 \$2 50 2006 \$2 150 \$3 100 2007 \$3 200 \$4 150 Real GDP
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