02 GOALS OF MACRO

# 02 GOALS OF MACRO - SECTION 2: MAJOR GOALS OF...

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SECTION 2: MAJOR GOALS OF MACROECONOMICS

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GOAL 1 PROMOTE ECONOMIC GROWTH Increase output of goods and services Boost output per capita.
HOW DO WE MEASURE TOTAL OUTPUT? NOMINAL GROSS DOMESTIC PRODUCT (GDP) The dollar value of final output of goods and services produced in the United States.

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1. IF OUTPUT INCREASED 10%: This is economic growth 2. IF PRICES INCREASED 10%: This is not economic growth This is inflation
CALCULATION OF A GROWTH RATE: Growth rate = (New – Old)/Old x 100% Example: New value = 2,200 Old value = 2,000 Growth rate = (2200 – 2000)/2000 x 100% = .10 x 100% = 10%

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NOMINAL GDP: Value of output calculated using prices that existed during the year when the goods and services were produced Value of output in 2005 using 2005 prices

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REAL GDP: Value of output calculated using prices that existed in some base year Value of output in 2005 using 1983 (base year) prices

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PRICE INDEX Choose a base year (say 1983) Set the price index to 100 for 1983 Assume prices during 2005 are 75% higher than during 1983 Then the PRICE INDEX for 2005 would be 175
FORMULA FOR REAL GDP: Real GDP = (Nominal GDP/Price index) x 100

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1993: Nominal GDP = \$6,343.3 billion Price index = 144.5 (based on 1983 = 100) Real GDP = (\$6,343.3 / 144.5) x 100 = \$4,389.80 billion
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## This note was uploaded on 04/07/2008 for the course ECON 0110 taught by Professor Kenkel during the Spring '08 term at Pittsburgh.

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02 GOALS OF MACRO - SECTION 2: MAJOR GOALS OF...

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