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.
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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
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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
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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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