...Gross Domestic Product The gross domestic product (GDP) is one of the main indicators used to measure the health of a country’s economy. Economists measure growth with changes in real gross domestic gross domestic product (real GDP)---the market value of final goods and services produced in economy stated in the prices of a given year (McGraw-Hill 155). In plain simple terms gross domestic product is the economic report card of the United States. The parts that make up GDP are: Growth where when production and sells are good income is good with a growing economy with total output and total income increasing. Business cycle is the upward or downward movement of the economic activity that occurs around the growth trend (McGraw-Hill 158). The business cycle phases are: The peak, The downturn, The trough, and The upturn Unemployment in where a percentage of people who are fully capable of working but they can’t attain employment. Unemployment is social problem and a government problem. Inflation is a continual rise the price level. The consumer price index (CPI), the producer price index (PPI), and the GDP deflator are all price indexes used faced by producers (McGraw-Hill 158). GDP with its components of growth, business cycle, unemployment and inflation affects everyone in the country. A good report card we will usually see low unemployment and wage increases and a booming economy. A bad report card usually means lower profits for companies, and high...
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...to a miller for $1.00. The miller turns the wheat into flour and then sells the flour to a baker for $3.00. The baker uses the flour to make bread and sells the bread to an engineer for $6.00. The engineer eats the bread. What is the value added by each person? What is GDP? Farmer’s VA = $1 Miller’s VA = $2 Baker’s VA = $3 GDP = $6 3. Suppose a woman marries her butler. After they are married, her husband continues to support him as before (but as a husband rather than as an employee). How does the marriage affect GDP? How should it affect GDP? GDP is affected because the husband is no longer employed and GDP will be reduced minus his salary. 4. Place each of the following transactions in one of the four components of expenditure: consumption, investment, government purchases, and net exports. a. Boeing sells an airplane to the Air Force. Government purchases b. Boeing sells an airplane to American Airlines. Investment c. Boeing sells an airplane to Air France. Net exports d. Boeing sells an airplane to Amelia Earhart. Consumption e. Boeing builds an airplane to be sold next year. Investments 5. Find data on GDP and its components, and compute the percentage of GDP for the following components for 1950, 1980, and the most recent year available. 50 80 10 a. Personal consumption expenditures 183.4...
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...At the end of 1996, a study of the Consumer Price Index was done under the leadership of Michael Boskin in which they declared that the CPI has been overstated and that the index should have been at a rate of 1.8% as opposed to the reported amount of 2.9%. His report also included that the CPI had been overstated similarly of the past twenty years. The finding in his report shows that the government was doing a good job at controlling inflation and that productivity was higher than previously reported. Since our government uses index to adjust stats such as GDP per capita, a reduction in CPI shows our economic performance as improved. We cannot afford to take his report into consideration as there are many flaws and deceptions in his findings. The CPI is made up of many details below are a few key points that will help that will help to reveal the flaws and deceptions regarding Boskin’s determination. Wrong Market Basket The BLS conducts a survey every ten years on consumer behavior in order to set up a weighted “market basket of goods and services” that is supposed to represent outlays of the average citizen and is adjusted for any changes they find in lifestyle. These adjustments only consider two lifestyles the CPI-W which represents living conditions for lower middle class and poor urban household getting their income from wages and salaries as clerical non-executive workers, and the CPI-U which represents non-wealthy urban consumers inclusive of wage earners, salaried...
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...This report discusses macroeconomic factors that impact both the automotive and health-care industries. Interest rates, consumer price index (CPI), consumer confidence, Gross Domestic Product (GDP), wage rates, and inventory levels impact the macroeconomic environment to influence these industries in the short run. Consumption as a percentage of the GDP depicted in table 1 indicates a continuous declined in consumer spending from 2005 through 2010 and suggests that consumers are becoming more conservative with disposable income spent on elective health-care products and procedures as-well-as new vehicle purchases. As the nominal interest rates indicate in table 2, the FED attempted to encourage consumer spending by decreasing the interest rates to encourage expansionistic economic activity, which would also be a positive influencing factor for both the health-care and automotive industries. The automobile industry is volatile by nature and heavily influence by macroeconomic factors, while the health-care industry enjoys an inelastic environment. Macroeconomic factors influence the health-care industry, it is unlikely essential health-care demand will decrease in the short term; however, elective health-care products and services will likely suffer as will new vehicle purchases as consumers remain conservative. The future is not as bleak as one might anticipate. The automotive industry is traditionally volatile and dependent upon the macroeconomic environment and currently producing...
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... Price of pineapples $10 $10.50 $11 75 85 90 $15,000 $16,000 $15,500 50,000 60,000 45,000 $4 $4.50 $5 a) Using 2009 as base year, calculate nominal and real GDP per capita for 2009, 2010 and 2011. b) Keeping 2009 as base year for prices, compute Utopia’s inflation rates for 2010 and 2011 using both the CPI and the GDP deflator. When calculating the CPI, assume that the representative consumer purchases in any given year 10 T -shirts, 1 car and 100 pineapples. c) Explain why the computed inflation rates are not the same when u sing the two different methods. 2. For this question assume that we are within the short -run goods market framework developed in Chapter 3 in Blanchard. Suppose that the economy is characterized by the following behavioral equations: Note that in this economy investment, I, depends positively on output, Y. This mirrors the fact that firms in the real world will increase their investment expenditure on capital goods when sales are picking up. a) Write down and graph the supply and demand functions for the economy’s goods market. When drawing the goods market diagram, make sure to accurately label the intercepts and slopes of both fu nctions. Econ 301B Winter 2012 b) Solve for the following variables: equilibrium GDP (Y), disposable inco me (YD), consumption spending (C)...
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...How Exports impact GDP Tiffany Cook March 19, 2015 Econ 214 (gwartney, 2015) “Gross domestic import is the market values of all final goods and sales” There are various factors that make up the subcategories of the United States, Gross domestic product. This definition tells us how we ultimately arrive at a calculations of the gross domestic products, but it does not shed light on the economies output and input and the benefits or setbacks each service may have. Some ways that we can look at expenditure approach is to know the wealth of what our goods and services can provide, also how these goods and services can be a come up or a setback dependent upon what we do more of. The expenditure approach allows us to see what our consumers have been benefiting from with the goods and services that have been provided to them by the US. Foreigners make up a portion of the GDP with imports, but in order for us to be on the winning side we would have to provide other countries with more of our products for them to buy or consume. Therefore the greatest impact on GDP is what we export in order to gain a profit from the consumer. If we were the consumer we would be looking to do the same. The economies main goal is to make the money and keep more of it. Exports allow us to do more of that, imports gives us resources to supply the source products for us to export. (Deekay, 2009)States that “export instability stimulates inflation. When inflation rises in a country the products tend...
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...400,000 380,000 Price of 1 Automobile Price of 1 loaf of Bread Price of 1 cup of Coffee Number of Automobiles Produced Number of Cups of Coffee Produced Number of Loaves of Bread Produced 1. Using the year 2007 as the base year, compute the following statistics for each year: nominal GDP, real GDP, the GDP deflator (a Paasche price index) and the CPI (a Laspeyres price index). For the CPI, assume that the representative basket of goods is exactly the one produced in the year 2007 Answer: To calculate nominal GDP for 2007 is $20, 000 ∗ 100 + $1.25 ∗ 400, 000 + $2 ∗ 100, 000 = $2, 000, 000 + $500, 000 + $200, 000 = $2, 700, 000 for 2008 $21, 000 ∗ 120 + $1.50 ∗ 380, 000 + $2.1 ∗ 115, 000 = $2, 520, 000 + $570, 000 + $241, 500 = $3, 331, 500 To calculate real GDP for 2007, since 2007 is the base year real GDP 2007 equals $2,700,000 1 for 2008 just use the 2007 prices $20, 000 ∗ 120 + $1.25 ∗ 380, 000 + $2 ∗ 115, 000 = $2, 400, 000 + $475, 000 + $230, 000 = $3, 105, 000 The amount of stuff produced in 2008, at 2007 prices is the real GDP in 2008 To calculate the GDP deflator in both years simply divide Nominal GDP by Real GDP, so for 2007 GDP def lator 2006 = $2.7 million/$2.7 million = 1 and for 2008 GDP def lator 2007 = $3, 331, 500/$3, 105, 000 = 1.073 For the CPI , just calculate it as a Laspeyres price index so that a0 pat + b0 pbt + c0 pct CP It = a0 pa0 + b0 pb0 + c0 pc0 where a stands for autos and b stands for bread. Since 2007 is the base year the CPI equals one. For 2008,...
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...Econ201 Macro-economy Spring 2013 Wesam Almadani LAG140 Table of Content Overall state of Economy in Saudi Arabia Demographic profile of Saudi Arabia GDP in Saudi Arabia CPI and Inflation Rate in Saudi Arabia Unemployment Rate in Saudi Arabia Economic problems in Saudi Arabia Economy in Saudi Arabia Saudi Arabia is the largest Arabian Country which is located in southwest Asia. It clenches the largest free market economy in the Middle East and North Africa. The geographic setting of Saudi Arabia provides an easy entrée to export the markets of Europe, Asia, and Africa. Saudi Arabia is an oil-based economy with a robust government control over the main economic activities; it approximately holds 17% of the worlds established petroleum assets. Saudi Arabia grades the largest exporter of petroleum, and plays a primary role in OPEC. The petroleum sector alone interprets for roughly 45% of GDP, 80% of budget revenues, and 90% of export earnings. The following shows the demographic profile of Saudi Arabia: Population | 26,939,583 includes 5,576,076 non-nationals | Dependency Ratio | total dependency ratio: 46.9 % youth dependency ratio: 42.6 % elderly dependency ratio: 4.2 % potential support ratio: 23.6 | Population Growth Rate | 1.51% | Net Migration Rate | -0.62 migrant(s) / 1,000 population | Urbanization | urban population: 82.3% of total population (2011) rate of urbanization: 2.38% annual rate of change...
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...Real GDP vs. Nominal GDP Real GDP is GDP adjusted for changes in the price level and Nominal GDP is GDP expressed at current prices and it is often called money GDP (Gwarthney, pg. 732 & 734). Both the Real GDP and Nominal GDP are from the GDP deflator which is measurements of money and power that are the effects of inflation. The Real GDP is the measurements of significant of price changes and Nominal GDP is the measurements of inflation. We need both Real GDP and Nominal GDP because both plays important roles in the economics system and both are use to keep up with the comparison of years, prices, price index, and real GDP with percentage increases between of the area noted. In my first article, Wall Street Journal, it took place in Japan around the 2000 about the fourth quarter concern because instead of the prices rising they are progressively declining among other nations are excelling. I paid attention in the first 2 quarters real and nominal were the same but on the last two it change the nominal gdp became poorer then the real gdp. In which is bad because the products of goods and services determined the inflation and real growth in which is the numbers economics look for to increase because it’s the profit that counts. I suggest that Japan needed to reevaluate a plan to increase their products and sells so the inflation and real gdp and the nominal which is the money would increase in the world trade sells. My 2nd article of reality of today of 2014...
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...Analysis on M2 & CPI of China, 1990-2014 The chart below demonstrates the broad money (M2) and Consumer Price Index (CPI) of China during the period of 1990 to 2014. The data is picked from the official website of the National Bureau of Statistics of China. (Data source: National Bureau of Statistics of China) According to the graph, both two figures show an uptrend in last three decades, and they shows a positive correlation. The M2 of 1990 was only about 1,500 billion yuan, and it increased gradually in the next decade. The growth rate of the CPI kept raising every year, and after the year of 2008 it witnessed a remarkable rise, reaching at 122,840 billion yuan in 2014, which is 80 times of the figure of 1990. At the same time, the CPI ascended from 216.4 in 1990 to over 600 in 2014. During 1993 and 1996, the increase was apparently more rapid than other years. However, in 2009 the number decreased slightly, and this is the only year in which it goes down. The increase of paper money accelerates the raising speed of M2, and as a result the CPI goes up as well. During 1993 to 1996 the growth rates of CPI were almost 25%, which is incredibly high. Serious inflation was happened around that period, and it turned better between 2000s. In 2010s, however, the bad circumstance seems back again. The amount of M2 rocketed dramatically during the past few years, and it may cause another serious inflation in the near future if the government do not take effective measures...
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...1 1.a) Units of Price of Nominal GDP Real Year Stuff Produced Stuff GDP Deflator GDP 2003 500 $20 $10,000 95.2 $10,504 2004 520 $21 $10,920 100.0 $10,920 2005 560 $24 $13,440 114.3 $11,759 Nominal GDP = (Units Produced in a Year) x (Price in a Year) Price Deflator = Ratio of Price in Each Year to Price in the Base Year, multiplied by 100 (Note: The Price Deflator for the base year is given to be 100.0) Real GDP = (Nominal GDP for Year t) x (Deflator in Base Year) / (Deflator for Year t) The numbers you calculated may differ slightly due to rounding. b) Growth Rate of Nominal GDP between 2004 and 2005: (13,440 / 10,920) - 1 = 0.2308 or 23.08% c) Inflation Rate between 2003 and 2004: (100.0 / 95.2) - 1 = 0.0504 or 5.04% d) Annualized Growth Rate of Real GDP between 2003 and 2005: (11,759 / 10,504)1/2 - 1 = 0.0581 or 5.81% Note that the 1/2 power is used because the growth took place over two years, and you want to "annualize" the growth. That is, you want to compute how fast real GDP would have to grow each year to reproduce its actual growth over the two-year period. 2a) Here is a table with the 2010 data obtained from the FRED database (http://research.stlouisfed.org/fred2/). From the FRED home page, follow the links to “Gross Domestic Product (GDP) and Components” and then “GDP/GNP.” The quarterly nominal GDP figures are designated by the series ID “GDP.” You can take real GDP directly from the variable “GDPC1” (one...
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...contributes more GDP-the production of an economy car or the production of a luxury car? Why? The luxury car because the luxury car cost more and therefore increases consumption and it reduces the net port because the car is imported 4. Many years ago Peggy paid $500 to put together a record collection. Today she sold her albums at a garage sale for $100. How does this sale affect GDP? The sale from Peggy selling her record collection at a yard sale is not included in GDP. GDP measures the value of production that takes place within a specific interval of time, usually a year or a quarter. 5. List the four components of GDP. Give an example of each. The four components of GDP are 1) consumption- Spending on Households on goods and services, with the exception of purchases of new housing. 2) Investment-the purchase of goods that will be used in the future to produce more goods and services. 3) Government Purchases-Spending on goods and services by local, state, and federal government 4) net exports- Spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports). 6. Why do economists use real GDP rather than nominal GDP to gauge economic well being? Because by evaluating current production using prices that are fixed at past levels, real GDP shows how the economy’s overall production of goods and services change over time. 8.Why is it desirable for a country to have a large GDP? Give an example...
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...measure of economic well-being – real, per capita GDP. Further, if we want to see how our economic well-being is changing over time, we can calculate how real GDP is changing in percentage terms (for example, real GDP grew 4% last quarter). Now, we turn our attention to another important measure of the economy. We want to measure how the cost of living changes over time. The main intuition here is that, over time, peoples’ incomes and the prices of goods and services increase. 30 years ago an ice cream sundae cost $1 and a typical economics professor earned $35,000. Now, a (bad) ice cream sundae costs $4.50 and a typical economics professor earns $70,000. Main Parts of the Notes: 1. How do we measure the cost of living? a. Using the GDP price deflator b. Constructing the Consumer Price Index (CPI) c. Deriving an inflation rate from the CPI 2. How do we adjust for inflation when comparing dollar values over time? Minor Point: What are the weaknesses of the CPI as a measure of the cost of living? Measuring The Cost of Living: There are two broad measures of the cost of living: the GDP price deflator and the CPI. Both measures move together, so they paint a similar picture of the cost of living. We will briefly discuss the GDP deflator first, and then move on to the more important CPI. GDP Price Deflator: Last time we saw how we can calculate both nominal and real GDP. The idea here is to construct a measure (and...
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.... Assume that a typical consumer basket includes 50 bars of each type. Compute a consumer price index for each year and determine the percentage change in the index over the two years. Last year, Jimmy’s consumer basket was $100 worth of Snicker’s bars, and $50 worth of Butterfinger bars for a total consumer basket of $150. This year, Jimmy’s consumer basket is $75 worth of Snicker’s bars, and $87.50 worth of Butterfinger bars for a total consumer basket of $162.50. The percentage change in the index over the two years is as follows: (162.50/150) – 1.0 x 100 = .083 or 8.3% Calculate Jimmy's nominal spending on candy bars in each year. Does nominal spending increase or decrease? Nominal spending is the total value of output produced in each year. Last year, Jimmy spent $150 on Snickers (75 x $2) and $100 on Butterfinger bars (100 x $1) for a total of $250. This year Jimmy spent $180 on Snickers (120 x $1.50) and $157.50 on Butterfinger bars (90 x $1.75) for a total of $337.50. Jimmy’s nominal spending increased this year. Using the first year as the base year, determine Jimmy's real spending on candy bars in each year. Does real spending increase or decrease? Real spending is the total value of output produced in each year valued at the prices prevailing in year one. Last year, Jimmy’s real spending is the same as his nominal spending - $250. This year, Jimmy’s real spending on Snickers is $240 (120 x $2) and $90 (90 x $1.00) on Butterfinger bars for a total of...
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...increasing population and the amount of resources becoming less and less, we can imagine that the general demand will soon exceed the supply. | * | Stability of Government | When the government regularly monitors the economy with political authority over actions and affairs. | | | Recession | * A temporary depression in economic activity or prosperity. This happens when people stop spending money possibly due to inflation | * The uk is currently out of recession as people | * | Interest rates | These are set by banks to determine the percentage to be paid back on top of the repayment of a loan. | | | Gross Domestic Product (GDP) | The total amount of all incomes is called the Gross Domestic Product (GDP) or national income (Gross Domestic Income). Countries with higher GDP will spend more than countries with a lower GDP. | | | Labour Market | The Labour Market consists of employers requiring (demand)...
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