# 0 2008 1179 change 18 economy produces two goods oil

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ods: Oil and Wheat Nominal GDP Quantity of Oil Price of Oil Quantity of Wheat Price of Wheat Nominal GDP 2002 100 100 100 150 25000 2008 110 120 120 175 34200 10% 20% 20% 17% 37% Change Real GDP using 2002 Prices Quantity of Oil 2002 Price of Oil Quantity of Wheat 2002 Price of Wheat Real GDP (2002) 2002 100 100 100 150 25000 2008 110 100 120 150 29000 10% 0% 20% 0% 16% Change GDP Deflator = 100 x Nominal GDP/Real GDP GDP Deflator 2002 100.0 2008 117.9 Change 18% = 100 x ( 34,200 / 29,000 ) Economics 104 Calculating nominal and real GDP: N goods in the economy with price pi,t and quantity qi,t. 2002 is the base year. Nominal GDP for 2002 and 2008: (P Y )2002 = GDP2002 = (P Y )2008 = GDP2008 = N X i=1 pi,2002 ⇥ qi,2002 N X pi,2008 ⇥ qi,2008 i=1 Real GDP for 2002 and 2008: Y2002 = RGDP2002 = GDP2002 Y2008 = RGDP2008 = N X i=1 pi,2002 ⇥ qi,2008 Deﬂators for 2002 and 2008: GDP2002 P2002 = ⇥ 100 = 1000 RGDP2002 P2008 GDP2008 = ⇥ 100 = RGDP2008 PN i=1 pi,2008 PN i=1 pi,2002 ⇥ qi,2008 ⇥ qi,2008 14 Economics 104 11 GDP and Social Wellbeing Gross Domestic Product does provide an important measure of economic activity. But it has important limitations as well when considering the objectives of economic policy. GDP does not tell us how income/production is distributed. Some part of GDP is produced using foreign factors of production, which does not directly beneﬁt domestic residents. Alternative measure: Gross National Income — income earned by domestic residents (home and abroad). Gross National Income (GNI) is equal to Gross National Product (GNP). Gross in GDP means that it includes payments to maintain the physical capital in the economy (capital consumption allowances); this doesn’t immediately beneﬁt domestic residents. Net Domestic Income and Net National Income are alternatives. GDP doesn’t value leisure (non-working) time directly. GDP doesn’t capture the depletion of resources or environmental damage done by production. Additional Notes for Lecture 2 Economics 104 15 GDP and GNI (GNP) — what’s t...
View Full Document

## This homework help was uploaded on 03/03/2014 for the course ECON 104 taught by Professor Voss during the Spring '10 term at University of Victoria.

Ask a homework question - tutors are online