AP Macroeconomics - Arlington Public Schools

ecruhurriedManagement

Oct 28, 2013 (4 years and 13 days ago)

304 views

AP Macroeconomics

Daily Focus Objective / Question

Real GDP vs Nominal GDP, GDP
Short Falls

Created by Mr. Eric W. Breighton Underhill, All Rights Reserved

Arlington Public Schools.

Real GDP


Measures the value of all final goods and services
produced within the boundaries of a country. This is
measured over a specific time period, usually one
calendar year.


Economists use this number to determine the strength of
an economy.


Most often this number is given in terms of individual
members of a population (per capita)


RealGDP / total population = GDP / Capita


Takes into account depreciation / valuation and reflects
the changes in price level (adjusted or real)

Nominal GDP


The total value of goods and services
produced within a country using the
current market price for the good or
service. This calculation can also be made
by using prices from a specific target or
base year.


This approach may reflect a price level
increase in GDP without actual output
levels increasing.

GDP Price Index


Market Basket


a selected group of goods
and services that is compared to previous
years consumption models to measure
changes in GDP, price levels and
preferences.


The Market Basket is identified by a base
year.


Price Index Calculation


PI in a given yr = Price of Market Basket


of a specific year


--------------------------

x100


Price of Same Basket in


Base Year



Calculate Real GDP




Nominal GDP


Real GDP =
-------------------


Price Index (hundreths)

Short Falls of the Model


The GDP model does not include household
workers, laborers who work for their own
benefit (not traded in markets)



Accountants only receive data on market
transactions and therefore omit this sector.



The Black Market or Underground Trading.
Gamblers, smugglers, drug growers and dealers
do not have their incomes calculated in GDP.
This is because they seek to hide their incomes.

Short Falls of the Model


Leisure and Relaxation: paid vacation, paid time off,
benefit days, holidays.



This leisure time and the wage associated with it is not
included in GDP.



Quantitative values of measuring products do NOT take
into account the quality of the product or the increase in
the quality of a product. Thus GDP does not accurately
report economic well


being and improvement due to
qualitative controls.