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Chainwghtclarify0

# Chainwghtclarify0 - The formula used in the Parkin book is...

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Clarification of Chain-weighted method of calculating real GDP To measurereal GDP growth from oneyear (or quarter) to thenext, usethefollowing formula: = = = = - - - - = - n i i i n i i i n i i i n i i i t Y t P t Y t P t Y t P t Y t P t Y t Y 1 1 1 1 ) 1 ( ) 1 ( ) ( ) 1 ( ) 1 ( ) ( ) ( ) ( ) 1 ( ) ( Year Price of DVDs Quantity of DVDs Price of shirts Quantity of shirts 2006 \$20 10 \$30 30 2007 \$21 12 \$32 35 30 30 10 20 35 30 12 20 30 32 10 21 35 32 12 21 ) 1 ( ) ( + + + + = - t Y t Y Example: Calculatethechain-weighted growth of Real GDP = 1.375 Note: Y(t)/Y(t-1) = 1 + growth rate. To get %, subtract 1 and multiply by 100. Thus the growth rateis (1.375 – 1)x100 = 37.5%

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Comparison to Parkin Book Theformula I gaveyou is thecorrect formula.
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Unformatted text preview: The formula used in the Parkin book is a good approximation. To see this consider the following example: Consider the increase in real GDP between 2006 and 2007. Suppose that the increase is 10% at 2006 base year prices and 20% at 2007 base year prices. Parkin’s formula says take the average, which is 15%. Plugging the gross growth rates (1+growth) into the actual formula, we get: square root of (1.10 x 1.20) = 1.149, which implies a growth rate of (1.149 – 1)x100 = 14.9%, which is very close to Parkin’s approxmation....
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Chainwghtclarify0 - The formula used in the Parkin book is...

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