GDP and CPI

Question 1

GDP formula

Answer 1

Question 2

Break down of components of GDP

Answer 2

Question 3

value of US GDP =

Answer 3

Question 4

Real GDP

Answer 4

is the total value of final goods and services produced in the economy during a year, calculated as if prices had stayed constant at the level of some given base year. A real GDP number always comes with information about what the base year is.

Question 5

Nominal GDP

Answer 5

A GDP number that has not been adjusted for changes in prices is calculated using the prices in the year in which the output is produced.

Question 6

Nominal GDP calculation

Answer 6

ompute price × quantity for each good, then add them up

Question 7

real GDP calculation

Answer 7

1. Pick a “base year.”
2. Collect data on prices in base year.
3. Collect data on quantities for all years (base year + another year).
4. Compute value of GDP in each year using base year prices.

Question 8

aggregate price level

Answer 8

a single number that represents the overall price level for final goods and services in the economy

Question 9

market basket

Answer 9

a hypothetical consumption bundle of consumer purchases of goods and services, used to measure changes in overall price level.

Question 10

price index

Answer 10

a hypothetical consumption bundle of consumer purchases of goods and services, used to measure changes in overall price level.

Question 11

price index on a given year =

Answer 11

Question 12

inflation rate

Answer 12

the annual percent change in a price index — typically the consumer price index. The inflation rate is positive when the aggregate price level is rising (inflation) and negative when the aggregate price level is falling (deflation).

Question 13

inflation rate equation

Answer 13

Question 14

Consumer Price Index

Answer 14

a measure of prices; calculated by surveying market prices for a market basket intended to represent the consumption of a typical urban American family of four. The CPI is the most commonly used measure of prices in the United States.

Question 15

Other factors in measuring inflation

Answer 15

Seasonally adjusted. The inflation index can adjust for seasonal changes in price e.g. high prices in December – sales in Jan.
Adjusting for quality. A complication in measuring inflation is how to do we measure the price of mobile phones if – every year, the quality of the phone increases. If the iPhone increases in price – is this inflation or is it because it has more features. Inflation measures take into account the type of good may be changing so every price increase may not be inflationary but changing good.

Question 16

Producer price index (PPI)

Answer 16

a measure of the cost of a typical basket of goods and services purchased by producers. Because these commodity prices respond quickly to changes in demand, the PPI is often regarded as a leading indicator of changes in the inflation rate.

Question 17

GDP deflator

Answer 17

a price measure for a given year that is equal to 100 times the ratio of nominal GDP to real GDP in that year.

The GDP deflator for a given year is equal to 100 times the ratio of nominal GDP for that year to real GDP for that year. Since real GDP is currently expressed in 2012 dollars, the GDP deflator for 2012 is equal to 100. If nominal GDP doubles but real GDP does not change, the GDP deflator indicates that the aggregate price level doubled.

Question 18

GDP Price Deflator =

equation

Answer 18

(Nominal GDP ÷ Real GDP) × 100

Question 19

Understanding the GDP Price Deflator

Answer 19

Question 20

RGDP per person is a measure of of

Answer 20

“the standard of living.”

Question 21

Growth Rate =

Answer 21

Percentage Change

Question 22

A price index:

characteristics

Answer 22

is normalized so that it equals 100 in the base year.
is used to measure the cost of a market basket across different years.
always includes a base year.

Question 23

Intermediate goods are NOT counted in GDP because:

Answer 23

doing so would result in double counting

Question 24

Productivity is declining when:

Answer 24

population growth exceeds real GDP growth.

Question 25

Taxes equal:

Answer 25

total income minus consumption minus private savings.

Question 26

Capital inflows into a country are associated with:

Answer 26

imports exceeding exports.

Question 27

The equilibrium price in the market for loanable funds is the:

Answer 27

interest rate

Question 28

An amount that would correspond to a particular future value if deposited today at a specific interest rate is the:

Answer 28

present value

Question 29

A liability is:

Answer 29

a requirement to pay in the future.

Question 30

What is the difference between intermediate goods and investment goods?

Answer 30

Intermediate goods are fully used up in production, whereas investment goods retain some of their value over multiple rounds of production.

Question 31

Intermediate goods are ….. included in GDP.

Answer 31

Are NOT

Question 32

Which of the following transactions should be included in GDP for the United States?

Answer 32

Question 33

What is the value of GDP in Micronia?

Answer 33

750

Question 34

What is the value of net exports?

Answer 34

0

Question 35

What is the value of disposable income?

Answer 35

650