Free Essay

Gdp & Hdi

In: Business and Management

Submitted By Arafatdubnk
Words 4174
Pages 17
An Assignment
On
Relationship between GDP & HDI

Submitted ToCourse Instructor Of B-University of DhakaDepartment of Banking |

Submitted ByMd. Yasir ArafatId No. 62B.B.A 13th BatchDepartment of BankingUniversity of Dhaka |

Date of Submission08.o7.09 |

Introduction to GDP A region's gross domestic product, or GDP, is one of the ways of measuring the size of its economy. The GDP of a country is defined as the total market value of all final goods and services produced within a country in a given period of time (usually a calendar year). It is also considered the sum of value added at every stage of production (the intermediate stages) of all final goods and services produced within a country in a given period of time.

Components of GDP
Each of the variables C (Consumption), I (Investment), G (Government spending) and X − M (Net Exports) (where GDP = C + I + G + (X − M) as above)
C (Consumption) is private consumption in the economy. This includes most personal expenditures of households such as food, rent, medical expenses and so on but does not include new housing.
I (Investment) is defined as investments by business or households in capital. Examples of investment by a business include construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory. Spending by households (not government) on new houses is also included in Investment. In contrast to its colloquial meaning, 'Investment' in GDP does not mean purchases of financial products. Buying financial products is classed as 'saving', as opposed to investment. The distinction is (in theory) clear: if money is converted into goods or services, it is investment; but, if you buy a bond or a share of stock, this transfer payment is excluded from the GDP sum. That is because the stocks and bonds affect the financial capital which in turn affects the production and sales which in turn affects the investments. So stocks and bonds indirectly affect the GDP. Although such purchases would be called investments in normal speech, from the total-economy point of view, this is simply swapping of deeds, and not part of real production or the GDP formula.
G (Government spending) is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchase of weapons for the military, and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits.
X (Exports) is gross exports. GDP captures the amount a country produces, including goods and services produced for other nations' consumption, therefore exports are added.
M (Imports) is gross imports. Imports are subtracted since imported goods will be included in the terms G, I, or C, and must be deducted to avoid counting foreign supply as domestic

Examples of GDP component variables
Examples of C, I, G, and NX(net exports): If you spend money to renovate your hotel so that occupancy rates increase, that is private investment, but if you buy shares in a consortium to do the same thing it is saving. The former is included when measuring GDP (in I), the latter is not. However, when the consortium conducted its own expenditure on renovation, that expenditure would be included in GDP.
For example, if a hotel is a private home then renovation spending would be measured as Consumption, but if a government agency is converting the hotel into an office for civil servants the renovation spending would be measured as part of public sector spending (G).
If the renovation involves the purchase of a chandelier from abroad, that spending would also be counted as an increase in imports, so that NX would fall and the total GDP is affected by the purchase. (This highlights the fact that GDP is intended to measure domestic production rather than total consumption or spending. Spending is really a convenient means of estimating production.)

Types of GDP

There are two types of GDP

* Nominal GDP
Nominal GDP is GDP evaluated at current market prices. Therefore, nominal GDP will include all of the changes in market prices that have occurred during the current year due to inflation or deflation. Inflation is defined as a rise in the overall price level, and deflation is defined as a fall in the overall price level. In order to abstract from changes in the overall price level, another measure of GDP called real GDP is often used. Real GDP is GDP evaluated at the market prices of some base year. For example, if 1990 were chosen as the base year, then real GDP for 1995 is calculated by taking the quantities of all goods and services purchased in 1995 and multiplying them by their 1990 prices.

* Real GDP
Real gross domestic product (GDP) is a macroeconomic measure of the size of an economy adjusted for price changes and inflation. It measures in constant prices the output of final goods and services and incomes within an economy. The formula for its definition is [(Nominal GDP)/(GDP deflator)] x 100, however, it is not calculated in this way. Real GDP is calculated as prices in the "base year" times quantities in the current year, such that production is held constant for the value of currency. Real GDP for a given year is the given year's nominal GDP stated in the based-year price level. Real GDP growth on an annual basis is the nominal and abnormal GDP growth rate adjusted for inflation and expressed as a percentage.

GDP of Bangladesh (In Millions)

Nominal GDP Growth vs. Real GDP Growth
GDP, or Gross Domestic Product is the value of all the goods and services produced in a country. The Nominal Gross Domestic Product measures the value of all the goods and services produced expressed in current prices. On the other hand, Real Gross Domestic Product measures the value of all the goods and services produced expressed in the prices of some base year. An example:
Suppose in the year 2000, the economy of a country produced $100 billion worth of goods and services based on year 2000 prices. Since we're using 2000 as a basis year, the nominal and real GDP are the same. In the year 2001, the economy produced $110B worth of goods and services based on year 2001 prices. Those same goods and services are instead valued at $105B if year 2000 prices are used. Then:
Year 2000 Nominal GDP = $100B, Real GDP = $100B
Year 2001 Nominal GDP = $110B, Real GDP = $105B
Nominal GDP Growth Rate = 10%
Real GDP Growth Rate = 5%
Once again, if inflation is positive, then the Nominal GDP and Nominal GDP Growth Rate will be less than their nominal counterparts. The difference between Nominal GDP and Real GDP is used to measure inflation in a statistic called The GDP Deflator.
Measurement of GDP

* International standards
The international standard for measuring GDP is contained in the book System of National Accounts (1993), which was prepared by representatives of the International Monetary Fund, European Union, Organization for Economic Co-operation and Development, United Nations and World Bank. The publication is normally referred to as SNA93 to distinguish it from the previous edition published in 1968 (called SNA68)
SNA93 provides a set of rules and procedures for the measurement of national accounts. The standards are designed to be flexible, to allow for differences in local statistical needs and conditions.

* National measurement
Within each country GDP is normally measured by a national government statistical agency, as private sector organizations normally do not have access to the information required (especially information on expenditure and production by governments).

* Interest rates
Net interest expense is a transfer payment in all sectors except the financial sector. Net interest expenses in the financial sector are seen as production and value added and are added to GDP.

Three approaches to measuring GDP
1. Expenditures approach:
The total spending on all final goods and services (Consumption goods and services (C) + Gross Investments (I) + Government Purchases (G) + (Exports (X) - Imports (M))
GDP = C + I + G + (X-I)
2. Income approach (NI = National Income)
Using the income approach, GDP is calculated by adding up the factor incomes to the factors of production in the society. These include
Employee compensation + corporate profits + Proprietor's Income + Rental income + Net Interest
3. Value added approach:
The value of sales of goods - purchase of intermediate goods to produce the goods sold

Standard of living and GDP
GDP per capita is not a measurement of the standard of living in an economy. However, it is often used as such an indicator, on the rationale that all citizens would benefit from their country's increased economic production. Similarly, GDP per capita is not a measure of personal income. GDP may increase while incomes for the majority of a country's citizens may even decrease or change disproportionally. For example, in the US from 1990 to 2006 the earnings (adjusted for inflation) of individual workers, in private industry and services, increased by less than 0.5% per year while GDP (adjusted for inflation)increased about 3.6% per year over the same period.

Advantage of GDP
The major advantages of GDP per capita as an indicator of standard of living are that it is measured frequently, widely and consistently; frequently in that most countries provide information on GDP on a quarterly basis (which allows a user to spot trends more quickly), widely in that some measure of GDP is available for practically every country in the world (allowing crude comparisons between the standard of living in different countries), and consistently in that the technical definitions used within GDP are relatively consistent between countries, and so there can be confidence that the same thing is being measured in each country.

Disadvantage of GDP
The major disadvantage of using GDP as an indicator of standard of living is that it is not, strictly speaking, a measure of standard of living. GDP is intended to be a measure of particular types of economic activity within a country. Nothing about the definition of GDP suggests that it is necessarily a measure of standard of living. For instance, in an extreme example, a country which exported 100 per cent of its production and imported nothing would still have a high GDP, but a very poor standard of living.
The argument in favor of using GDP is not that it is a good indicator of standard of living, but rather that (all other things being equal) standard of living tends to increase when GDP per capita increases. This makes GDP a proxy for standard of living, rather than a direct measure of it. GDP per capita can also be seen as a proxy of labor productivity. As the productivity of the workers increases, employers must compete for them by paying higher wages. Conversely, if productivity is low, then wages must be low or the businesses will not be able to make a profit.

History of the human development concept

For decades, the economic growth paradigm dominated the national development discourse. However, in the 1980s unemployment levels escalated; and access to social services deteriorated in many countries including some industrialized countries while at the same time, economic production was expanding. In other words, high rates of economic growth did not automatically translate into improved human well-being. During the same period, some countries were registering improvement in human well-being with modest economic growth. These raised questions around the nature, distribution and quality of economic growth. It became clear that economic growth alone is not an Adequate yardstick for a country’s level of development. The need for a conceptual shift and alternative policy options that create a balance between economic growth and protection of the interest of poor and marginalized members of society became imperative. The HDI, which was introduced in the first Human Development Report published in 1990, was response to this demand. The idea of a composite index that measures socio-economic progress was
Conceived by Mahbub ul Haq a renowned economist, whose vision was to come up with one measure which is as crude as the GDP, but “not as blind to social aspects of human lives as the GNP

What is the Human Development Index (HDI)?

The HDI serves as a frame of reference for both social and economic development. It is a summary measure for monitoring long-term progress in a country’s average level of human development in three basic dimensions: a long and healthy life, access to knowledge and a decent standard of living. It sets a minimum and a maximum for each dimension, called goalposts, and shows where each country stands in relation to these goalposts, expressed as a value between 0 and 1.The life expectancy component of the HDI is calculated using a minimum value for life expectancy of25 years and maximum value of 85 years. This is because even with HIV/AIDS it is unlikely for life expectancy at birth to fall below 25 years. The knowledge component of the HDI is measured by adult literacy rates and the combined gross enrolment ratio in primary, secondary and tertiary education, weighted to give adult literacy more importance (two-thirds). While at the national level it is unlikely for any of the knowledge indicators to assume a zero value, at disaggregated levels, it is possible for some population sub-groups to score very low on the indicators. For this reason, the lower end of the goalpost is set at 0 and the upper end at 100 per cent.

For a decent standard of living, which is measured by GDP per capita in purchasing power parity(PPP) US Dollar terms, the goalpost for minimum income is $100 (PPP) and the maximum is $40,000(PPP). GDP per capita is converted into PPP terms to eliminate differences in national price levels in order to make standards of living comparable across countries. In the calculation of the HDI, a logarithm of income is used to reflect the diminishing importance of income with increasing GDP. This is premised on the belief that people do not need an infinite amount of money for a decent quality of life. The scores for the three HDI components are then averaged in an overall index. The HDI is currently calculated for 177 countries and areas for which data are available. While the concept of human development is much broader than this composite measure, the Differs a powerful alternative to GDP as a summary measure of human well-being. It provides a useful entry point into other rich information contained in the indicator tables covering a wide range of human development issues presented each year in the Human Development Reports.

What the HDI reveals
The HDI reveals that some countries do better on human development with relatively low GDPs per capita. For example, Italy’s GDP per capita is only about two-thirds of that of the United States but the two countries have similar HDI values
Figure 1: GDP vs. HDI; comparing Italy and US
Disaggregating the HDI by income quintiles for countries for which representative data are available is also revealing. For instance, the gap between the value for the richest 20 per cent and the poorest20 per cent of households in the United States is about 17 per cent. This is similar to the gap between average HDIs for the United States and Cuba respectively. In other words, while the richest 20 per cent in the United States would be at the top of the HDI league table, the poorest 20 per cent would-be at the same human development level as people living in Cuba

Figure 2: Human development index by income groups

The variation in HDI value marked by unequal opportunities and capabilities calls for public policies aimed at equalizing opportunities and choices. Apart from the moral imperative to overcome extreme inequalities in income, access to education and health, inequalities pose a threat to national and global securities.

Future Possibilities

Since its introduction in 1990, the HDI’s analytical framework, methodology and data have been subjected to rigorous scrutiny. Some of the major criticisms have led to major refinements of the methodology and component indicators but the index continues to evolve. For example, the HDI by income groups, calculated for 15 countries (13 developing and 2 developed) with data and published in the 2006 HDR, points to a need for bringing out inequalities in HDI for evidence-based planning. This is one area that the HDRO would like to extend to as many countries as data availability would allow.

Another future plan is to construct a separate HDI for women and for men to better present gender inequalities in human development. But this depends on reliable data on income for women and for men.

There are also discussions around capturing the environment dimension of human development either as part of the HDI or as a new index. However, these discussions are at a very early stage and data availability will inform any the final decision.

HDI of Bangladesh

Over the last 10 years Bangladesh has made impressive gains in key human development indicators. In the 2004 UNDP Human Development Report, Bangladesh ranked 138 among 177 countries with an HDI score of 0.509, which places it among countries considered to have achieved medium human development. This is the result of macroeconomic stability, low population growth, increase in women’s empowerment, reduction in aid dependence, food self-sufficiency, effective disaster management capacity, promoting non-governmental organizations (NGOs), free and fair parliamentary elections, a vibrant, pluralist, democratic civil society marked by cultural activism and developmental debates, and an active and free press.

Through the adoption and implementation of sound policies and strategies, Bangladesh has managed to sustain a large measure of economic stability and macroeconomic growth. Throughout the 1990s, the economy grew by an average of 4.75 percent per year.
Gross Domestic Product (GDP) per capita has grown steadily from US$ 273 in 1990-91 to US$ 441 (or $1400 in PPP). As a result, the Human Poverty Index for Bangladesh fell from 61 in 1983 to 42.2, an achievement that was all the more remarkable given that the pace of income poverty reduction was only one percent point per year. Nonetheless 63 million people continue to live below the poverty line. There has, however, been a steep decline in the number of hardcore poor from 36.75 percent in 1983-83 to just under twenty percent or approximately 30 million people. Despite these significant achievements, much will need to be done to ensure the right to survival and to achieve the MDG target of halving the proportion of the poor, and the hungry and malnourished.

Significant investments in disaster preparedness, including the development of early warning systems and the creation of a wide network of flood and cyclone shelters, has seen a significant decrease in the number of lives lost each year. However, natural disasters are still responsible for significant property losses with major consequences for the poor. There is therefore scope for continued improvement in terms of disaster mitigation and recovery that is targeted to the most vulnerable populations

There has been a significant increase in the reports of violence across Bangladesh. Accurate information regarding the nature and extent of violence in the country remains scarce due to lack of data. There is, however, an emerging “culture of violence” which is of rising concern. Violence within the family remains the most under-reported crime in Bangladesh. Cases of marital violence are routinely labelled as “domestic disputes”, and as such do not merit assistance within families, let alone police intervention. This reflects, among other things, the existing patrimonial social structures that force woman into passive acceptance of violence. According to government statistics, one woman is subjected to violence every hour

Though the Bangladesh Constitution is committed to the equality of rights of all citizens, there still remain significant sections of the population who are unable to realise their right to development. A part of the process will necessarily involve ensuring that the most marginalised and vulnerable groups – women, minorities, children and others – do not get left behind amidst an overall positive scenario. It is also important to focus on the guarantee of human security with the basic norms of justice as a pre-condition for human development. The commitment to a transparent government through the use of information technology for development is one means of promoting accountability. The decentralisation of administrative and financial responsibilities would help to accelerate the process. These are all important steps towards ensuring that citizens have ownership over the development process. Finally, it is necessary to focus on the crosscutting issues of good governance and environmental sustainability to ensure the achievement of the MDGs and national development objectives. In the circumstances, one of the biggest challenges to the Government remains ensuring the right to participation and protection of the people of Bangladesh

The United Nations Development Program (UNDP) introduced a new way of measuring development by combining indicators of life expectancy, educational attainment and income into a composite human development index, the HDI.

The breakthrough for the HDI was the creation of a single statistic which was to serve as a frame of reference for both social and economic development. The HDI sets a minimum and a maximum for each dimension, called goalposts, and then shows where each country stands in relation to these goalposts, expressed as a value between 0 and 1.

The educational component of the HDI is comprised of adult literacy rates and the combined gross enrolment ratio for primary, secondary and tertiary schooling, weighted to give adult literacy more significance in the statistic. Since the minimum adult literacy rate is 0% and the maximum is 100%, the literacy component of knowledge for a country where the literacy rate is 75% would be 0.75, the statistic for combined gross enrolment is calculated in a analogous manner.

The life expectancy component of the HDI is calculated using a minimum value for life expectancy of 25 years and maximum value of 85 years, so the longevity component for a country where life expectancy is 55 years would be 0.5.

For the wealth component, the goalpost for minimum income is $100 (PPP) and the maximum is $40,000 (PPP). The HDI uses the logarithm of income, to reflect the diminishing importance of income with increasing GDP. The scores for the three HDI components are then averaged in an overall index.

The life expectancy component was calculated on the basis of data on life expectancy from UN 2007; data on adult literacy rates from UNESCO Institute for Statistics 2003 and 2007; data on combined gross enrolment ratios from UNESCO Institute for Statistics 1999 and 2007; and data on GDP per capita (2005 PPP US$) from World Bank 2007.

HDI Position of Bangladesh of the given years

Correlation Analysis between GDP and HDI

By using the correlation analysis we can easily find out what types relation exist between HDI and GDP .Whether they are positively correlated or negatively correlated .To get the desired result we have to make a calculation on the following process. We have also used the following data. Year | GDP (X) | HDI (Y) | 2007 | 1311.01 | 0.536 | 2006 | 1223.01 | 0.524 | 2005 | 1123.84 | 0.514 | 2004 | 1052.79 | 0.504 | 2003 | 980.96 | 0.5 | 2002 | 925.61 | 0.497 | 2001 | 884.63 | 0.492 | 2000 | 840.22 | 0.489 | 1999 | 793.99 | 0.462 | 1998 | 756.93 | 0.437 |

Correlation Analysis Year | GDP (X) | (X-X)x | (X-X)2 | HDI (Y) | (Y-Y)y | (Y-Y)2 | xy | 2007 | 1311.01 | 321.711 | 103497.97 | 0.536 | 0.0405 | 0.001640 | 13.029 | 2006 | 1223.01 | 233.711 | 54620.83 | 0.524 | 0.0285 | 0.000812 | 6.661 | 2005 | 1123.84 | 134.541 | 18101.28 | 0.514 | 0.0185 | 0.000342 | 2.489 | 2004 | 1052.79 | 63.491 | 4031.11 | 0.504 | 0.0085 | 0.000072 | 0.540 | 2003 | 980.96 | -8.339 | 69.54 | 0.5 | 0.0045 | 0.000020 | -0.038 | 2002 | 925.61 | -63.689 | 4056.29 | 0.497 | 0.0015 | 0.000002 | -0.096 | 2001 | 884.63 | -104.669 | 10955.60 | 0.492 | -0.0035 | 0.000012 | 0.366 | 2000 | 840.22 | -149.079 | 22224.55 | 0.489 | -0.0065 | 0.000042 | 0.969 | 1999 | 793.99 | -195.309 | 38145.61 | 0.462 | -0.0335 | 0.001122 | 6.543 | 1998 | 756.93 | -232.369 | 53995.35 | 0.437 | -0.0585 | 0.003422 | 13.594 | | X=9892.99 | 0 | 309698.12 | Y =4.955 | 0.0000 | 0.007489 | 44.06 |

X=XN =9892.9910 =989.299
Y=YN =4.95510 =.4955 r=xy√x2y2 =43.9623o968.12×.007486 =43.96248.150 = .913

The Correlation between GDP and HDI is .913 which refers that there is highly positive correlation. That if the GDP in a given Year increases the HDI also increases on that year and if the GDP in a given year decreases the ranking will also decrease on that year.

Similar Documents

Free Essay

Hdi and Gdp

...Product (GDP for short) has been used as a method of evaluating the human well-being for a long time all over the world. But with the introduction of Human Development Report in 1990, the Human Development Index (HDI) has attracted great attention of policy and academic circles, as well as broader community around the world. This appearance also helps raising the question: Is GDP still an adequate measure of societal well-being and should it be replaced by HDI? This question has attracted a lot of people and cause a controversy among them. So let’s have a look at that matter of argument. As you know the standard well-being varies from time to time, from place to place so we should at first understand: What is well-being? In general, well-being is the pursuit and fulfillment of personal aspirations and the development and exercise of human capabilities, within a context of mutual recognition, equality and interdependence. To make it more detailed here are some key criteria that we should include to valuate well-being: Material living standards (income, consumption and wealth); Health; Education; Personal activities including work; Political voice and governance; Social connections and relationships; Environment (present and future conditions); and Insecurity, of an economic as well as a physical nature. That is the overview of well-being. What about the effectiveness of GDP in measuring societal well-being? To answer this question we should have a quick look at: How GDP......

Words: 1727 - Pages: 7

Free Essay

Gdp vs Hdi

...GDP VS HDI The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. HDI: The Human Development Index (HDI) is a statistical tool used to measure a country's overall achievement in its social and economic dimensions. UK currently 14 on the HDI, were 9th in Europe UKs GDP position is 6th China are 91st on the HDI and GDP is 2nd "Although the economy in China is very large, the income of Chinese people is still much lower than in many developed countries," "and I think environmental pollution also affected China's ranking on the list." Countries high on the Human Development Index tend to have annual population growth rates of 1 percent or less, high urban population percentages (65 percent and up) and balanced percentages of people under 15 and over 65 years of age. Those low on the index tend to have annual population growth rates of 1.5 percent or higher, less than 35 percent of the population in urban areas, and an under-15 population that greatly outnumbers those above 65 years (in most cases, more than 10 times as many.) There is today a very strong correlation between rising GDP/capita. If you exclude 6 countries on the right side of the strong correlation that have higher GDP/capita than HDI due to oil or diamonds; and if you exclude 6 former Soviet Republics with collapsed economy but still high literacy rate on the left side of the......

Words: 446 - Pages: 2

Free Essay

Gnp, Gdp, Hdi

...AND CONTRAST THE MEASURES OF DEVELOPMENT WHICH ARE GDP, GNP, AND HDI? Firstly define the three key measures of development which are GDP, GNP, and HDI? Then I will compare and contrast the two economic approaches (GDP/GNP) and then compare and contrast these two to the human development approach (HDI) DEFINATIONS: GDP- The monitory value of goods and services produced by residents of a country (both citizens & non-citizens) in a given period of time usually a year. GDP can either be Real or Nominal GDP. GNP- This is the monitory value of goods and services produced by citizens of a country in a given period of time usually a year. GNP can either be Real or nominal. HDI-Since 1990 the UNDP has been publishing an annual report called the Human development report & the centre core of this report is the human development report (HDI). The HDI ranks countries according to their level of human development. It is for this reason therefore that the HDI focuses on three main variables & these include. Per capital income, life expectancy & educational attainment. SIMILARITIES 1. Both represent an attempt to measure the total economic output of a nation during a given period (usually one year) in sense they both measure development from an economic perspective 2. It measures both the size and direction of economic activity (growth, stagnation or contraction) – expansions and recessions are based on changes in GDP 3. Shows the relative strength of the......

Words: 1041 - Pages: 5

Premium Essay

Gdp vs. Hdi- the Adequate Measure of Societal Well - Being.

...GDP vs. HDI- the adequate measure of societal well-being Introduction “We need a new economic paradigm that recognizes the parity between the three pillars of sustainable development. Social, economic and environmental well-being are indivisible. Together they define gross global happiness,” said the Secretary-General Ban Ki-moon in the high-level meeting – “Happiness and Well-being: Defining a New Economic Paradigm” at UN Headquarters in New York on the 2sd, April, 2012. These words remind us of the fact that not just economic well-being but social well-being (as much as enviromental well-being) is also an essential factor in rating a nation’s happiness, as well as that of a man. Therefore, the important thing to do now is to find a way to measure social well–being, and should that be Gross Domestic Product (as some country has done)? However, in actual fact, there are people who believe that GDP is inadequate and it should be replaced by the Human Development Index (HDI). We find this opinion very convincing. The United States Institue of Peace (USIP) defined “social well-being” as “an end state in which basic human needs are met and people are able to coexist peacefully in communities with opportunities for advancement.” But what is an “end state”? And we can base on which factors to evaluate it? To answer these questions, the USIP also pointed out the 4 neccesery conditions to achive this “end state”, which were: Access To and Delivery of Basic Needs Services,......

Words: 1767 - Pages: 8

Premium Essay

Real Gdp vs. Nominal Gdp

...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...

Words: 485 - Pages: 2

Free Essay

Analysis on M2 & Cpi of China, 1990-2014

...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......

Words: 280 - Pages: 2

Premium Essay

Econ 301 Problem Set 1

... 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)...

Words: 392 - Pages: 2

Premium Essay

Discussion Board 1 Econ 214

...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......

Words: 559 - Pages: 3

Premium Essay

How Well Do You Know Me?

...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......

Words: 997 - Pages: 4

Premium Essay

Economy in Saudi Arabia

...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......

Words: 1220 - Pages: 5

Premium Essay

Gross Domestic Product

...Calvin B. McIlwain Professor Bartels ECO-201 March 28, 2012 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......

Words: 274 - Pages: 2

Free Essay

Chapter 2

...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...

Words: 1238 - Pages: 5

Premium Essay

Paper

...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”......

Words: 1668 - Pages: 7

Premium Essay

Analysis of the Macroeconomic Environment Within the Health-Care

...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......

Words: 274 - Pages: 2

Free Essay

Does the Consumer Price Index Overstate Inflation and Changes in the Cost of Living?

...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,......

Words: 745 - Pages: 3