What Part of GDP?
(C, G, I or Not counted)
1.
2.
3.
4.
5.
6.
Chris buys 10 gallons of Rocky Road Ice Cream
Trenton buys 50 new police cars
Microsoft builds a new factory in the Philippines
Alice builds a new house in Phoenix
Jerry buys 100 shares of Microsoft stock
Loretta buys a case of beads with which she will
make necklaces to sell
7. Sarah buys a new necklace from Loretta
8. Ford hires 100 new autoworkers
Comparing GDP across
Time and Space
Real v. Nominal GDP
Per Capita GDP
Comparing GDP
Over time, prices in an economy tend to rise
As a result the value of a dollar (its purchasing
power) tends to decline
Over many years, what a dollar can buy can change
dramatically
e.g, $1.00 from 1980 would buy as much as $2.89 today!
How do we account for this?
Nominal v. Real GDP
• Nominal GDP
– the value of GDP expressed in dollars valued in that
particular year
– Does not account for changes in price level
– Current Dollars
• Real GDP
– The value of GDP expressed in dollars converted to a
common year (base year)
– Accounts for inflation
– Constant Dollars
Nominal v. Real GDP
• How is this achieved?
– Reporting current transactions as if they were
conducted in base year dollars
OR
• GDP Deflator
– An index calculated to convert current dollars into
constant dollars (base year = 1)
– Real GDP = Nominal GDP x Deflator
GDP Exercise
Quantity of Apples
Price of Apples
Quantity of Oranges
Price of Oranges
2000
3,000
2010
4,000
$0.20
2,000
$0.30
3,000
$0.40
1. Calculate Nominal GDP in both years.
2. Calculate Real GDP for 2010 in year 2000
constant dollars.
$0.50
Comparing GDP Across Space
• Purchasing Power Parity
– Converts GDP to “dollars” that represent
equivalent purchasing power
• Per Capita GDP
– GDP divided by population
– Measure of standard of living
Nominal GDP Rankings
(Thousands $)
1
2
3
4
5
6
7
8
9
10
United States
China
Japan
Germany
France
United Kingdom
Brazil
Russia
Italy
India
$16,244,600
8,358,400
5,960,180
3,425,956
2,611,221
2,471,600
2,254,109
2,029,812
2,013,392
1,875,213
GDP Per Capita
1
2
3
4
5
6
7
8
9
10
Qatar
$145,894
Luxembourg
90,333
Singapore
78,762
Brunei
73,823
Kuwait
70,785
Norway
64,363
United Arab Emirates
63,181
San Marino
62,766
Switzerland
53,977
United States
53,001