(c) The share going to government consumption purchases rose sharply from 1950 to 1980
but has receded somewhat since then.
(d) Net exports, which were positive in 1950, were substantially negative in 2005.
(e) The share going to national defense purchases fell from 1980 to 2005.
(f)
The share going to state and local purchases rose from 1950 to 1980.
(g) Imports have grown rapidly relative to GDP.
6.
a.
i.
Nominal GDP is the total value of goods and services measured at current
prices. Therefore,
Nominal GDP
2000
= (
P
×
Q
) + (
P
×
Q
)
= ($50,000
×
100) + ($10
×
500,000)
= $5,000,000 + $5,000,000
= $10,000,000.
Nominal GDP
2010
= (
P
×
Q
) + (
P
×
Q
)
= ($60,000
×
120) + ($20
×
400,000)
= $7,200,000 + $8,000,000
= $15,200,000.
ii.
Real GDP is the total value of goods and services measured at constant
prices. Therefore, to calculate real GDP in 2010 (with base year 2000), multi
ply the quantities purchased in the year 2010 by the 2000 prices:
Real GDP
2010
= (
P
×
Q
) + (
P
×
Q
)
= ($50,000
×
120) + ($10
×
400,000)
= $6,000,000+ $4,000,000
= $10,000,000.
Real GDP for 2000 is calculated by multiplying the quantities in 2000 by the
prices in 2000. Since the base year is 2000, real GDP
2000
equals nominal
GDP
2000
, which is $10,000,000. Hence, real GDP stayed the same between
2000 and 2010.
iii.
The implicit price deflator for GDP compares the current prices of all goods
and services produced to the prices of the same goods and services in a base
year. It is calculated as follows:
Implicit Price Deflator
2010
=
.
Using the values for Nominal GDP
2010
and real GDP
2010
calculated above:
Implicit Price Deflator
2010
=
= 1.52.
This calculation reveals that prices of the goods produced in the year 2010
increased by 52 percent compared to the prices that the goods in the economy
sold for in 2000. (Because 2000 is the base year, the value for the implicit
price deflator for the year 2000 is 1.0 because nominal and real GDP are the
same for the base year.)
iv.
The consumer price index (CPI) measures the level of prices in the economy.
The CPI is called a fixedweight index because it uses a fixed basket of goods
over time to weight prices. If the base year is 2000, the CPI in 2010 is an
average of prices in 2010, but weighted by the composition of goods produced
in 2000. The CPI
2010
is calculated as follows:
Chapter
2
The Data of Macroeconomics
7
2000
cars
2000
cars
2000
bread
2000
bread
2010
cars
2010
cars
2010
bread
2010
bread
2000
cars
2010
cars
2000
bread
2010
bread
Nominal GDP
2010
Real GDP
2010
$15,200,000
$10,000,000
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CPI
2010
=
=
=
= 1.6.
This calculation shows that the price of goods purchased in 2010 increased by 60
percent compared to the prices these goods would have sold for in 2000. The CPI
for 2000, the base year, equals 1.0.
b.
The implicit price deflator is a Paasche index because it is computed with a chang
ing basket of goods; the CPI is a Laspeyres index because it is computed with a
fixed basket of goods. From (6.a.iii), the implicit price deflator for the year 2010 is
1.52, which indicates that prices rose by 52 percent from what they were in the
year 2000. From (6.a.iv.), the CPI for the year 2010 is 1.6, which indicates that
prices rose by 60 percent from what they were in the year 2000.
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 Spring '08
 Staff
 Economics, Macroeconomics, Inflation, gross domestic product, GDP deflator

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