Lectures_Outline_Chpt2

# Use the prices in the base year to calculate the

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Unformatted text preview: – Choose a base year. – Use the prices in the base year to calculate the value of final goods. – Growth of output: (Yt-Yt-1)/Yt-1 • If &gt; 0, expansions. • If &lt; 0, recessions – Real GDP per capita = Real GDP/Population EXAMPLE: Pizza year 2002 2003 2004 P \$10 \$10 \$11 \$12 Latte Q 400 500 600 P \$2.00 \$2.00 \$2.50 \$3.00 Compute real GDP in each year, using 2002 as the base year: Q 1000 1100 1200 Increase: 2002: \$10 x 400 + \$2 x 1000 = \$6,000 2003: \$10 x 500 + \$2 x 1100 = \$7,200 2004: \$10 x 600 + \$2 x 1200 = \$8,400 20.0% 16.7% Measuring GDP: Some Caveats • Caveat: – Choice of the Base Year • Use Chained dollars to compute the ``Growth rate” [see Appendix to Ch.2] – Quality of Products • see Focus Box “Real GDP, Technological Progress, and the Price of Computers” – Home Production (housework, shopping, food preparation, etc…) The Inflation Rate “Inflation is when you pay \$15 for the ten-dollar haircut you used to get for \$5 when you had hair.” - Sam Ewing The Inflation Rate • Inflation: a situation...
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## This note was uploaded on 02/06/2014 for the course ECON 110A taught by Professor Staff during the Spring '08 term at UCSD.

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