GDP Count

Define C, I, G, NX

C- spending by households on goods and services with the exception of purchase of new housing

- spending by individuals

I- New plant and equiptment: Inventory Investment, New Residential Housing

-the purchase of goods that will be used in teh future to produce more goods and services.

G- Spending by the Government (local, state, and federal)

NX- Net Exports = Exports - Imports

-foreign purchases of goods

1. Intermediate goods (wheat for bread)

2. Resold goods (because not produced in a given time)

3. Nonmarket production (babysitting, gardening)

4. Black market/ illegal activities

nominal GDP

-the production of goods and services valued at ________ _________.

CPI (consumer price index)

inflation rate

producer price index

PPI

Problems in measuring the cost of living

(3)

1. Prices don't change proportionally

2. introduciton of new goods

3. unmeasured quality change

GDP Deflation=

GDP Nominal/ GDP Real x 100

a price index that allows us to compare price change overtime

nominal GDP

read GDP

-the production of goods and services valued at current prices

-the production of goods and services valued at constant prices

1. underground economy

2. home production/ non market

3. leisure (schooling/ no pay)

4. pollution

5. fairness (distribution of GDP

6. crime/ social issues

1. Fix the basket of goods/services

2. find the prices

3. find cost of the basket

4. choose a base year and calculate an index

5. use index to calculate inflation rate

1. Substitution bias

2. New product bias

3. Quality Improvement bias

4. Outlet bias

*CPI bigger than people really experience.

goods that consumers typically buy

vs

goods produced within a country.

CPI vs GDP

not here <-> price change shows here

buy foreign<-> not made here

oil <-> not produced here

not here<-> new military stuff

systematically, regularly adjustin values for inflation

(cost of living adjustment)

nominal rate - inflation rate

(nominal interest rates and inflation rates move together)