AP Econ
GDP Price Indexes,
National Income and
Net Domestic Product
Page 122 of New AP Book
Problem 8
• Use data pg 122
• Determine GDP
by both
methods then
NDP
Look at Data pg 122
GDP Method
GDP=C+I+G+Net Exports (Exports-Imports)
C=245
I=Net Private Domestic Inv + Detpreciation
=33+27
G=72
Net Exports= 11
245+60+72+11=$388
Problem 8
• Use data pg 122
• Determine GDP
by both
methods then
NDP
Income Approach (Add together)
GDP =
Compensation of employees + Rents + Interest +
Proprietors’ income +
Corporate profits (includes Corporate income taxes +
dividends + undistributed corporate profits) +
Indirect business taxes* +
Depreciation (consumption of fixed capital)* +
Net foreign factor income
*Note: Two adjustments must be made to get GDP:
*Indirect taxes minus subsidies are added to get
from factor cost to market prices.
*Depreciation is added above to get from Net
Domestic Product to Gross Domestic Product
Problem 8
Wages, salary, supplemental=$223
Rents=$14
Interest=13
Proprietor Income=33
Corporate Profits= Sum of next three
Corporate Taxes=$19
Dividends= $16
Und. Corp Profits=21
Indirect Business Taxes-Subsidies =$18
Depreciation of Capital=$27
Net Foreign Factor Income=$4
=$388
NDP
• Net Domestic Product—GDP minus Depreciation
• 388-27
• =361
National Income
• NDP minus statistical discrepancy and also net foreign factor
income=NI
• 361-0-4
• =357
Problem 11
• Question: Suppose in 1984 total output of a single good
economy was 7000 buckets of chicken. Also price of each
bucket was $10.
• Also assume that 22,000 buckets of chicken were produced at
$16 in 2000.
• Determine GDP price index for 1984 use 2000 as base year
• What % did inflation rise between 1984 and 2000?
• Use 2 methods listed in Table 6.6 to determine GDP in 1984 and
2000
Determine GDP price index for 1984 use 2000 as base year
Base year
quantity
Chicken
Base year
price
Base year
expenditure
$16
22,000X16=
22,000
$352,000
Current
year price
10
Current year
expenditure
22,000X10=
$220,000
(Nominal GDP
for the year)
Process
Base year index is 100
Index # for 1984 is 62.5
($352,000 divided by
($220,000 divided by
$352,000)*100
$352,000)*100
What % did inflation rise between 1984 and 2000?
• Easy! Since you are working with the base year you only need
to know the difference between the two numbers!
• 100-62.5=37.5%
Use 2 methods listed in Table 6.6 to determine GDP in 1984 and 2000
• Method One
• 1. Find Nominal GDP for the year
• 1984 Nominal GDP= $10 per bucket*7000 Buckets=
$70,000
• 2. Compute GDP price index (62.5)
• 3. Real GDP? Divide each year’s Nominal GDP by that year’ price index
$70,000/.625=$112,000
• 2000 GDP Real and Nominal Same since it is base $352,000