Lecture_3

# Lecture_3 - INTERMEDIATE MACRO THEORY LECTURE 3 Fall 2011...

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INTERMEDIATE MACRO THEORY: LECTURE 3 Fall, 2011, UC Davis Giovanni Peri, Professor of Economics, [email protected]

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A Simple Example: Where Real GDP Doesn’t Change If the quantity of goods and services produced does not change, but prices do change, then nominal GDP will change. However real GDP will not change. In an economy with multiple goods, we must use one year’s price to compute real GDP across time. Real GDP will be measured in a certain year’s (constant) dollars, while nominal GDP is measured in current dollars.
5950 Example No Changes in Quantities Changes in Quantities 19

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Nominal (current Prices) and Real (Constant Prices) GDP in the Example economy In 2008, Nominal GDP: \$1X(500 apples)+\$900X(5 computers)=5,000 \$ In 2009, Nominal GDP: \$2X (500 apples) +\$1000X(5 Computers)=6,000 \$ In 2009, Real GDP at constant (2008) prices: \$1X(500 apples)+\$900X(5 computers)=5,000 \$ Change in real GDP: 0%
A Second Example: Where Real GDP Changes Change in real GDP (09-10) at 2009 prices In 2009: GDP is 6,000 \$ In 2010 Change in real GDP (09-10) at 2010 prices :In 2009: In 2010: \$3X (550 apples) +\$1000X(6 Computers)=7,650 \$ Percentage Change: Case 1, Laspeyers: (7,100-6,000)/6,000=18.3% Case 2, Paasche: (7,650-6,500)/6,5000=17.7 % Chain weighted: Average of the two=18%

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Quantity Indexes: Laspeyres, Paasche, and Chain Weighting The Laspeyres index calculates changes in real GDP using the initial prices. In our previous example the change in real GDP at constant 2009 prices
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## This note was uploaded on 10/17/2011 for the course ECN 101 taught by Professor Frenkel during the Fall '10 term at UC Davis.

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Lecture_3 - INTERMEDIATE MACRO THEORY LECTURE 3 Fall 2011...

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