This preview shows page 1. Sign up to view the full content.
Unformatted text preview: Page 297 Focus Questions
What two variables are involved in calculating GDP?
If GDP is higher in one year than another,
do we automatically know why it is higher?
What is the difference between GDP and
How do economists go about computing
real GDP? Real GDP Key Terms
real GDP The Two Variables of GDP:
P and Q
When we computed GDP in a simple,
one-good economy, we multiplied two variables to find GDP: price (P) and quantity
(Q). If either of the two variables rises and
the other remains constant, GDP will rise.
To see how this relationship works, look
at the following chart:
Price Quantity GDP $10
$30 With a price of $10 and a quantity of 2, GDP
is $20. When the price rises to $15 but the
quantity is held constant at 2, GDP rises to
$30. Finally, if the price is constant at $10
and the quantity increases to 3, GDP again is
$30. Clearly, an increase in either price or
quantity will raise GDP.
Suppose someone then told you that
GDP was $20 one year and $30 the next
year. You would have no way of knowing
whether GDP increased because price increased, because quantity...
View Full Document
This document was uploaded on 01/16/2014.
- Winter '14