Activator – Chapter 23
* Create a chart and predict a figure for each of the following
Trend
1900-1920
Prediction
Average Life Expectancy
(years)
2011
Actual Figure
Prediction
Actual Figure
47
78.37
$520
(5609.15 in
today’s dollars)
$48,147
Poverty Rate (percent of US
Households)
40%
15.1%
(46.2 million)
High School Completion
(percent of adults)
22%
92%
Per Capita Income
Included
Excluded
Microeconomics - How Much Does
Coach L Get Paid Per Year?
• Around $65,000 per year
Macroeconomics - How Much Does Everyone
In The US Get Paid Per Year?
• 15.68 Trillion Dollars
Chapter 23 – Measuring a Nation’s Income
•Macroeconomics – the study of the “big picture” of the economy; the
economy as a whole.
•i.e. – Federal Reserve and the Federal Government, inflation,
unemployment, and economic growth
Gross Domestic Product and Growth (Ch. 12)
•Gross
Domestic Product (GDP) – the total market value of all final goods
and services produced within a country’s borders in a given period of
time.
Gross Domestic Product and Growth
•GDP measures the economy’s total income
•Total income = total spending
Gross Domestic Product Defined
•“Market dollar value…” – prices of goods and services
• F150 - $35,000, Apple $1.00
Gross Domestic Product Defined
•“…of all…” – all items
produced in the economy and sold
legally in commercial markets.
• Pears, grapefruit, books, movies, etc.
Gross Domestic Product Defined
•“…final…” – only value of final goods and services
(excluding intermediate products).
• Included – Cheeseburger(output)
• Excluded – Cow parts (inputs)
Gross Domestic Product Defined
•“…goods and services…” – Tangible and intangible
products
• Included - Hair products and haircuts
Gross Domestic Product Defined
• “…produced…” – only includes new goods and services
produced currently.
• GM sells new car vs. used car
• Included - New car
• Excluded - used car
Gross Domestic Product Defined
•“…within a country…” – only measures production
within a country’s borders.
• Included - Japanese company in the U.S.
• Excluded - Am. Company in Japan
Gross Domestic Product Defined
•“… In a given period of time…” – measured within a specific time
• Usually a year or quarter (three months)
4 Components of GDP

Four components:

GDP = C + I + G + NX
Consumption
Investment
Government
Net Exports
1.
C - Consumption of goods and services by households (Consumer Spending)
◦ Accounts for 70% of GDP
2.
I - Investments by businesses in goods and services (Business Spending)
◦ Accounts for 15% of GDP
3.
G - Government goods and services (Government Spending)
◦ Accounts for 20% of GDP
4.
NX - Net exports or imports of goods and services, (Foreign Spending)
*Exports (X) – Imports (M)*
◦ Accounts for -5 of GDP
GDP Google
http://www.google.com/publicdata/explore?
ds=d5bncppjof8f9_&ctype=l&met_y=ny_gd
p_mktp_cd
Application - Calculating GDP
Product
Quantity
Consumption Car Sales
10
Fast Food Sales
12
Personal Computers
50
Price (per 1 unit)
Dollar Value
4000
$400 ____________________________
2400
$200 ____________________________
$100 ____________________________
5000
15
10
45
300
$20 ____________________________
300
$30 ____________________________
$200 ___________________________
9000
Investment
Tractors
Business Computers
Telecommunication
s
Government
Military Personnel
Helicopters
Roads
5
2
1
Net Exports
*Figure this
amount by taking
Exports minus
Imports*
Total
Exports
Total
Imports
250000
$50,000 __________________________
400000
$200,000 __________________________
300000
$300,000 __________________________
$10,000
$20,000
-10000
__________________________
$961,000
Total Gross Domestic Product = _______________________________
Excluded from GDP
• Intermediate
products - inputs used to produce final goods and
services; excludes double counting
•The tires that come with the car are not counted as a final good
•However if you get a flat and buy the same tire it is counted as a final
good
Excluded from GDP
•Second-hand sales - refer to the sales of used goods.
Excluded from GDP
• Nonmarket Transactions/Underground Economy
– transactions that do not
take place in the legal marketplace (i.e. fixing your car, mowing your lawn,
babysitting, etc.)
Excluded Products from GDP
•Black Market– illegal activities, gambling, drugs, prostitution,
smuggling, etc.
Excluded from GDP
•Transfer Payments– redistribution of money from one group to another, i.e.
•Social security, welfare, unemployment checks
•Purchase Stocks and bonds
Included
Excluded
GDP Google
http://www.google.com/publicdata/explore?ds=d5bncpp
jof8f9_&ctype=l&met_y=ny_gdp_mktp_cd
GDP Classroom Simulation
GDP Video

http://www.youtube.com/watch?v=9m7Bz
vrPpgY&list=PL8B6092460F418F35&index
=24
Indicate the components of GDP that
each of the following transactions falls
under
Component of GDP or Excluded
component
A family buys a new refrigerator.
Consumption
Ford opens a new plant in Detroit,
Michigan.
Investment
Glynn County builds a new middle
school.
Government
China imports commodities from the
United States.
Net Exports
A garage sale in your neighborhood.
Second-Hand Sale
The tires, bolts, and engine for a new
automobile.
Intermediate Products
The illegal sale of imitation purses.
Underground Economy (Black Market)
Mowing your lawn every other
Non-Market Transaction
Saturday and being paid an allowance.
Checks sent to Social Security
recipients
Transfer Payment (Cash Transfer)
GDP Simulation
Year
Price
Quantity Sold
Total GDP
GDP Simulation
Year
Price
Quantity Sold
Total GDP
1
1
5
5
2
2
5
10
3
2
10
20
Nominal Versus Real GDP

Nominal GDP – GDP measured in “name only” (current prices), not adjusted for inflation.

Real GDP – GDP expressed in “fixed” (unchanging prices), adjusted for inflation.
Year 1 Nominal GDP
1.
Suppose an economy’s entire
output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
+ 10 trucks at $20,000 each =
Total =
Year 2 Nominal GDP
Year 2 Real GDP
Nominal Versus Real GDP

Nominal GDP – GDP measured in “name only” (current prices), not adjusted for inflation.

Real GDP – GDP expressed in “fixed” (unchanging prices), adjusted for inflation.
Year 1 Nominal GDP
1.
Suppose an economy’s entire
output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000
Total = $350,000
Year 2 Nominal GDP
Year 2 Real GDP
Nominal Versus Real GDP

Nominal GDP – GDP measured in “name only” (current prices), not adjusted for inflation.

Real GDP – GDP expressed in “fixed” (unchanging prices), adjusted for inflation.
Year 1 Nominal GDP
Year 2 Nominal GDP
1.
1.
Suppose an economy’s entire
output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000
Total = $350,000
In the second year, the
economy’s output does not
increase, but the prices of cars
and trucks do:
10 cars at $16,000 each =
+ 10 trucks at $21,000 each =
Total =
Year 2 Real GDP
Nominal Versus Real GDP

Nominal GDP – GDP measured in “name only” (current prices), not adjusted for inflation.

Real GDP – GDP expressed in “fixed” (unchanging prices), adjusted for inflation.
Year 1 Nominal GDP
Year 2 Nominal GDP
1.
Suppose an economy’s entire
output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000
1.
Total = $350,000
Total = $370,000
In the second year, the
economy’s output does not
increase, but the prices of cars
and trucks do:
10 cars at $16,000 each =
$160,000
+ 10 trucks at $21,000 each =
$210,000
Year 2 Real GDP
Nominal Versus Real GDP

Nominal GDP – GDP measured in name only (current prices), not adjusted for inflation.

Real GDP – GDP expressed in “fixed” (unchanging prices), adjusted for inflation.
Year 1 Nominal GDP
Year 2 Nominal GDP
Year 2 Real GDP
1.
Suppose an economy’s entire
output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000
1.
1.
Total = $350,000
Total = $370,000
In the second year, the
economy’s output does not
increase, but the prices of cars
and trucks do:
10 cars at $16,000 each =
$160,000
+ 10 trucks at $21,000 each =
$210,000
To correct for an increase in
prices, economists establish a
set of constant prices by
choosing one year as a base
year. :
10 cars at $15,000 each =
+ 10 trucks at $20,000 each =
Total =
Nominal Versus Real GDP

Nominal GDP – GDP measured in “name only” (current prices), not adjusted for inflation.

Real GDP – GDP expressed in “fixed” (unchanging prices), adjusted for inflation.
Year 1 Nominal GDP
Year 2 Nominal GDP
Year 2 Real GDP
1.
Suppose an economy’s entire
output is cars and trucks.
2. This year the economy
produces:
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000
1.
1.
Total = $350,000
Total = $370,000
In the second year, the
economy’s output does not
increase, but the prices of cars
and trucks do:
10 cars at $16,000 each =
$160,000
+ 10 trucks at $21,000 each =
$210,000
To correct for an increase in
prices, economists establish a
set of constant prices by
choosing one year as a base
year. :
10 cars at $15,000 each =
$150,000
+ 10 trucks at $20,000 each =
$200,000
Total = $350,000
GDP Deflator
Year 2 Nominal GDP – $370,000
 Year 2 Real GDP - $350,000

•Calculate the increase in prices based on the
GDP Deflator formula
•GDP deflator = Nominal GDP/Real GDP × 100
370,000
_____________× 100 = 106
350,000
6%
_____rise
in inflation
Inflation and Inflation Rate

Inflation – inflation is a rise in the general level of prices of goods and services in
an economy over a period of time.

Inflation Rate - percentage change in some measure of the price level from one
period to the next.

Inflation Rate = GDP Deflator in year 2 – GDP Deflator in year 1
GDP Deflator in year 1

GDP Deflator – an index that converts output measured at current prices into
constant-dollar GDP.
◦ The GDP deflator shows inflation, how much a change in the base year's GDP relies upon changes in
the price level.
Nominal GDP Versus Real GDP (RGDP)
$8
$9
1990
1995
$11
$10
2000
•Nominal GDP is the Price
Year
Price
•RGDP is the Pizza Pie
(physical units sold)
Units
Sold
1990
$8
10
2012
$11
10
2012
Nominal
GDP
Real GDP
Nominal GDP Versus Real GDP (RGDP)
$8
$9
1990
1995
$11
$10
2000
2012
•Nominal GDP is the Price
Year
Price
Nominal
GDP
Real GDP
•RGDP is the Pizza Pie
(physical units sold)
Units
Sold
1990
$8
10
$80
$80
2012
$11
10
$110
$80
Nominal vs. Real GDP Practice Problem
2009
Price
2009
2009
Quantity totals
2010
Price
2010
2010
Quantity totals
(nom.)
Food
$2
6
$3
8
Clothes
$6
5
$10
10
Entertainment $4
2
$5
5
Nominal GDP
2009
2010
GDP Deflator
2009
2010
Real GDP
2010
totals
(real)
Economic Growth
Per Capita GDP
•Real GDP per capita – real GDP divided by the total population
• Considered the best measure of a nation’s standard of living.
• Per
•
Capita – “for each person”
GDP and Quality of Life
•Nations with higher per capita GDP enjoy higher quality of life, such as:
•Better Nutrition
•Comfortable housing
•Longer life spans
•Better education
• Infrastructure/Telecommunications
(roads, bridges, cable, internet, phone lines, etc.)
Review Components of GDP
Indicate the components of GDP that each of
the following transactions falls under.
1. A family buys a new refrigerator.
2. Ford opens a new plant in Detroit,
Michigan.
3. Glynn County builds a new middle
school.
4. China imports commodities from the
United States.
What exclusionary components are affected
by the following transactions?
1. A garage sale in your neighborhood.
2. The tires, bolts, and engine for a new
automobile.
3. The illegal sale of imitation purses.
4. Mowing your lawn every other
Saturday and being paid an
allowance.
Calculating GDP
1.
•
•
Calculate the GDP deflator using the following figures:
Real GDP 2008 ($13.7 trillion)
Nominal GDP 2008 ($14.6 trillion) using the following formula:
1.065
106.5
100 = _____
Nominal GDP X 100 = __14.6 = _______X
13.7
Real GDP
2. Calculate the nominal GDP for year 2, then calculate the GDP deflator for year 2 using
year 1 as a base year.
PRODUCTION AND PRICES
YEAR 1
YEAR 2
GOODS
OUTPUT
PRICES
OUTPUT
PRICES
APRICOTS
10
$50
10
$55
BROCCOLI 10
$25
12
$25
CARROTS
$25
9
$30
10
Nominal GDP X 100 =
Real GDP
__1120
1025
Year 2Nominal:
Apricots - $550
Broccoli - $300
Carrots - $270
Total GDP - $1120
Year 2 Real GDP:
Apricots - $500
Broccoli - $300
Carrots - $225
Total GDP - $1025
= _______X
100 = _____
1.09
109 = 9% inflation
Business Cycles
•
Business Cycle – economy-wide fluctuations in a market or economy
over several months or years.
Contraction
Recovery
Business Cycles
•
•
Expansion – period of economic growth as measured by GDP
Low Unemployment
Contraction
Business Cycles
•
Peak – When real GDP stops rising; highest point in
the business cycle
Contraction
Business Cycles
•
•
Contraction – economic decline marked by falling real GDP
Rise in unemployment
Contraction
Business Cycles
•
Trough – “bottomed out”, economy reaches its lowest point,
real GDP stops falling
Contraction
Business Cycles
Recovery - A return to a normal state of the economy, where the
economy begins to show signs of health "signs of recovery in the
housing market“.
•
Contraction
Recession



Recession – is a prolonged
economic contraction
Real GDP falls for two consecutive
quarters
(6 straight months)
Rise in unemployment, falling profits,
bankruptcies, foreclosures, etc.
GDP
Depression
A long and severe
recession (8 quarters of
declining real GDP)
 Severely high
unemployment and low
output

GDP
Prices and Quantities
Year
Price of Hot Dogs
Quantity of Hot Dogs
Price of Hamburgers
Quantity of Hamburgers
2005
2006
2007
$1
$2
$3
100
150
200
$2
$3
$4
50
100
150
2005
2006
2007
Calculating Nominal GDP
________ per hot dog ×________ hot dogs = ____
_____ per hamburger ×____ hamburger = ____
________ per hot dog ×________ hot dogs = ____
_____ per hamburger ×____ hamburger = ____
________ per hot dog ×________ hot dogs = ____
_____ per hamburger ×____ hamburger = ____
2005
2006
2007
Total Market Value for Hot Dogs _______ + Total Market Value for Hamburgers _______ = __________
Total Market Value for Hot Dogs _______ + Total Market Value for Hamburgers _______ = __________
Total Market Value for Hot Dogs _______ + Total Market Value for Hamburgers _______ = __________
2005
2006
2007
Calculating Real GDP (base year 2005)
______ per hot dog ×______ hot dogs = _______
______ per hamburger ×______ hamburger = ____
______ per hot dog ×_______ hot dogs = ______
______ per hamburger ×_____ hamburger = ____
______ per hot dog ×_______ hot dogs = ______
______ per hamburger ×_____ hamburger = ____
2005
2006
2007
Total Market Value for Hot Dogs __________ + Total Market Value for Hamburgers __________ = __________
Total Market Value for Hot Dogs __________ + Total Market Value for Hamburgers __________ = ___________
Total Market Value for Hot Dogs __________ + Total Market Value for Hamburgers __________ = __________
Calculate the increase in prices based on the GDP Deflator formula
GDP deflator = Nominal GDP × 100
Real GDP
2005
2006
2007
____________/____________ × 100 = _____________
____________/____________ × 100 = _____________
____________/____________ × 100 = _____________
GDP
Prices and Quantities
Price of Hamburgers
Year
Price of Hot Dogs
Quantity of Hot Dogs
2005
2006
2007
$1
$2
$3
100
150
200
2005
2006
2007
Calculating Nominal GDP
___1_____ per hot dog ×__100______ hot dogs = __100__ __2___ per hamburger ×__50__ hamburger = __100__
___2_____ per hot dog ×__150______ hot dogs = __300__ __3___ per hamburger ×__100__ hamburger = __300__
___3_____ per hot dog ×__200______ hot dogs = __600__ __4___ per hamburger ×__150__ hamburger = __600__
2005
2006
2007
Total Market Value for Hot Dogs _______ + Total Market Value for Hamburgers _______ = __________
Total Market Value for Hot Dogs _______ + Total Market Value for Hamburgers _______ = __________
Total Market Value for Hot Dogs _______ + Total Market Value for Hamburgers _______ = __________
2005
2006
2007
Calculating Real GDP (base year 2005)
______ per hot dog ×______ hot dogs = _______
______ per hamburger ×______ hamburger = ____
______ per hot dog ×_______ hot dogs = ______
______ per hamburger ×_____ hamburger = ____
______ per hot dog ×_______ hot dogs = ______
______ per hamburger ×_____ hamburger = ____
2005
2006
2007
Total Market Value for Hot Dogs __________ + Total Market Value for Hamburgers __________ = __________
Total Market Value for Hot Dogs __________ + Total Market Value for Hamburgers __________ = ___________
Total Market Value for Hot Dogs __________ + Total Market Value for Hamburgers __________ = __________
$2
$3
$4
Quantity of Hamburgers
50
100
150
Calculate the increase in prices based on the GDP Deflator formula
GDP deflator = Nominal GDP × 100
Real GDP
2005
2006
2007
____________/____________ × 100 = _____________
____________/____________ × 100 = _____________
____________/____________ × 100 = _____________
GDP
Prices and Quantities
Price of Hamburgers
Year
Price of Hot Dogs
Quantity of Hot Dogs
2005
2006
2007
$1
$2
$3
100
150
200
2005
2006
2007
Calculating Nominal GDP
___1_____ per hot dog ×__100______ hot dogs = __100__ __2___ per hamburger ×__50__ hamburger = __100__
___2_____ per hot dog ×__150______ hot dogs = __300__ __3___ per hamburger ×__100__ hamburger = __300__
___3_____ per hot dog ×__200______ hot dogs = __600__ __4___ per hamburger ×__150__ hamburger = __600__
2005
2006
2007
Total Market Value for Hot Dogs ___100____ + Total Market Value for Hamburgers ___100____ = ____200______
Total Market Value for Hot Dogs ___300____ + Total Market Value for Hamburgers ___300____ = ____600______
Total Market Value for Hot Dogs ___600____ + Total Market Value for Hamburgers ___600____ = ____1200______
2005
2006
2007
Calculating Real GDP (base year 2005)
______ per hot dog ×______ hot dogs = _______
______ per hamburger ×______ hamburger = ____
______ per hot dog ×_______ hot dogs = ______
______ per hamburger ×_____ hamburger = ____
______ per hot dog ×_______ hot dogs = ______
______ per hamburger ×_____ hamburger = ____
2005
2006
2007
Total Market Value for Hot Dogs __________ + Total Market Value for Hamburgers __________ = __________
Total Market Value for Hot Dogs __________ + Total Market Value for Hamburgers __________ = ___________
Total Market Value for Hot Dogs __________ + Total Market Value for Hamburgers __________ = __________
$2
$3
$4
Quantity of Hamburgers
50
100
150
Calculate the increase in prices based on the GDP Deflator formula
GDP deflator = Nominal GDP × 100
Real GDP
2005
2006
2007
____________/____________ × 100 = _____________
____________/____________ × 100 = _____________
____________/____________ × 100 = _____________
GDP
Prices and Quantities
Price of Hamburgers
Year
Price of Hot Dogs
Quantity of Hot Dogs
2005
2006
2007
$1
$2
$3
100
150
200
2005
2006
2007
Calculating Nominal GDP
___1_____ per hot dog ×__100______ hot dogs = __100__ __2___ per hamburger ×__50__ hamburger = __100__
___2_____ per hot dog ×__150______ hot dogs = __300__ __3___ per hamburger ×__100__ hamburger = __300__
___3_____ per hot dog ×__200______ hot dogs = __600__ __4___ per hamburger ×__150__ hamburger = __600__
2005
2006
2007
Total Market Value for Hot Dogs ___100____ + Total Market Value for Hamburgers ___100____ = ____200______
Total Market Value for Hot Dogs ___300____ + Total Market Value for Hamburgers ___300____ = ____600______
Total Market Value for Hot Dogs ___600____ + Total Market Value for Hamburgers ___600____ = ____1200______
2005
2006
2007
Calculating Real GDP (base year 2005)
___1___ per hot dog ×___100___ hot dogs = ___100____
__2____ per hamburger ×___50___ hamburger = _100___
___1___ per hot dog ×___150____ hot dogs = __150____
__2____ per hamburger ×___100__ hamburger = _200___
___1___ per hot dog ×___200____ hot dogs = __200____
__2____ per hamburger ×___150__ hamburger = _300___
2005
2006
2007
Total Market Value for Hot Dogs __________ + Total Market Value for Hamburgers __________ = __________
Total Market Value for Hot Dogs __________ + Total Market Value for Hamburgers __________ = ___________
Total Market Value for Hot Dogs __________ + Total Market Value for Hamburgers __________ = __________
$2
$3
$4
Quantity of Hamburgers
50
100
150
Calculate the increase in prices based on the GDP Deflator formula
GDP deflator = Nominal GDP × 100
Real GDP
2005
2006
2007
____________/____________ × 100 = _____________
____________/____________ × 100 = _____________
____________/____________ × 100 = _____________
GDP
Prices and Quantities
Price of Hamburgers
Year
Price of Hot Dogs
Quantity of Hot Dogs
2005
2006
2007
$1
$2
$3
100
150
200
2005
2006
2007
Calculating Nominal GDP
___1_____ per hot dog ×__100______ hot dogs = __100__ __2___ per hamburger ×__50__ hamburger = __100__
___2_____ per hot dog ×__150______ hot dogs = __300__ __3___ per hamburger ×__100__ hamburger = __300__
___3_____ per hot dog ×__200______ hot dogs = __600__ __4___ per hamburger ×__150__ hamburger = __600__
2005
2006
2007
Total Market Value for Hot Dogs ___100____ + Total Market Value for Hamburgers ___100____ = ____200______
Total Market Value for Hot Dogs ___300____ + Total Market Value for Hamburgers ___300____ = ____600______
Total Market Value for Hot Dogs ___600____ + Total Market Value for Hamburgers ___600____ = ____1200______
2005
2006
2007
Calculating Real GDP (base year 2005)
___1___ per hot dog ×___100___ hot dogs = ___100____
__2____ per hamburger ×___50___ hamburger = _100___
___1___ per hot dog ×___150____ hot dogs = __150____
__2____ per hamburger ×___100__ hamburger = _200___
___1___ per hot dog ×___200____ hot dogs = __200____
__2____ per hamburger ×___150__ hamburger = _300___
2005
2006
2007
Total Market Value for Hot Dogs ___100_______ + Total Market Value for Hamburgers ___100_______ = ____200_______
Total Market Value for Hot Dogs ___150_______ + Total Market Value for Hamburgers ___200_______ = ____350_______
Total Market Value for Hot Dogs ___200_______ + Total Market Value for Hamburgers ___300_______ = ____500_______
$2
$3
$4
Quantity of Hamburgers
50
100
150
Calculate the increase in prices based on the GDP Deflator formula
GDP deflator = Nominal GDP × 100
Real GDP
2005
2006
2007
____________/____________ × 100 = _____________
____________/____________ × 100 = _____________
____________/____________ × 100 = _____________
GDP
Prices and Quantities
Price of Hamburgers
Year
Price of Hot Dogs
Quantity of Hot Dogs
2005
2006
2007
$1
$2
$3
100
150
200
2005
2006
2007
Calculating Nominal GDP
___1_____ per hot dog ×__100______ hot dogs = __100__ __2___ per hamburger ×__50__ hamburger = __100__
___2_____ per hot dog ×__150______ hot dogs = __300__ __3___ per hamburger ×__100__ hamburger = __300__
___3_____ per hot dog ×__200______ hot dogs = __600__ __4___ per hamburger ×__150__ hamburger = __600__
2005
2006
2007
Total Market Value for Hot Dogs ___100____ + Total Market Value for Hamburgers ___100____ = ____200______
Total Market Value for Hot Dogs ___300____ + Total Market Value for Hamburgers ___300____ = ____600______
Total Market Value for Hot Dogs ___600____ + Total Market Value for Hamburgers ___600____ = ____1200______
2005
2006
2007
Calculating Real GDP (base year 2005)
___1___ per hot dog ×___100___ hot dogs = ___100____
__2____ per hamburger ×___50___ hamburger = _100___
___1___ per hot dog ×___150____ hot dogs = __150____
__2____ per hamburger ×___100__ hamburger = _200___
___1___ per hot dog ×___200____ hot dogs = __200____
__2____ per hamburger ×___150__ hamburger = _300___
2005
2006
2007
Total Market Value for Hot Dogs ___100_______ + Total Market Value for Hamburgers ___100_______ = ____200_______
Total Market Value for Hot Dogs ___150_______ + Total Market Value for Hamburgers ___200_______ = ____350_______
Total Market Value for Hot Dogs ___200_______ + Total Market Value for Hamburgers ___300_______ = ____500_______
$2
$3
$4
Quantity of Hamburgers
50
100
150
Calculate the increase in prices based on the GDP Deflator formula
GDP deflator = Nominal GDP × 100
Real GDP
2005
2006
2007
___200_________/____200________ × 100 = ____100_________ or ____NA______ %
___600_________/____350________ × 100 = ___171__________ or ______71_____ %
____1200________/___500_________ × 100 = ___240__________ or _______140_____%
Application - Calculating GDP
Product Quantity
Consumption Automobiles
6
Replacement Tires
10
Shoes
55
Price (per 1 unit)
Dollar Value
$20000 _______________________________
$60 _______________________________
$50 _______________________________
Investment
Machinery
Computers
Cell Phones
10
30
45
$8000 ____________________________
$1500 ___________________________
$200 ___________________________
Government
Single Family
Multifamily
Commercial
3
5
1
$75,000 _________________________
$300,000 _________________________
$1,000,000 _________________________
Net Exports
*Figure this
amount by taking
Exports minus
Imports*
Total
Exports
$10,000
Total
Imports
$20,000
___________
- __________
=
___________ _________________________
Total Gross Domestic Product = _______________________________
Application - Calculating GDP
Product Quantity
Consumption Automobiles
6
Replacement Tires
10
Shoes
55
Price (per 1 unit)
Dollar Value
$20000 _________120,000________________
$60 _________600_____________
$50 _________2,750__________________
Investment
Machinery
Computers
Cell Phones
10
30
45
$8000 _________80,000__________________
$1500 _________45,000_________________
$200 _________9,000_________________
Government
Single Family
Multifamily
Commercial
3
5
1
$75,000 _________225,000________________
$300,000 _________1,500,000_______________
$1,000,000 _________1,000,000_______________
Net Exports
*Figure this
amount by taking
Exports minus
Imports*
Total
Exports
$10,000
Total
Imports
$20,000
___________
- __________
=
___________ _________-10,000________________
Total Gross Domestic Product = _________2,972,350______________________
Prices and Quantities
Price of Honey
Year
Price of Milk
Quantity of Milk
2005
2006
2007
$1
$1
$2
100
200
200
2005
2006
2007
Calculating Nominal GDP
___1_____ per milk ×___100_____ milk = __100_____
__2____ per honey ×___50____ honey =___100_____
___1_____ per milk ×___200_____ milk = __200_____
__2____ per honey ×___100____ honey =__200______
___2_____ per milk ×___200_____ milk = __400_____
__4____ per honey ×___100____ honey =__400______
2005
2006
2007
Total Market Value for Milk ___100_______ + Total Market Value for Honey ___100_______ = ____200________
Total Market Value for Milk ___200_______ + Total Market Value for Honey ___200_______ = ____400________
Total Market Value for Milk ___400_______ + Total Market Value for Honey ___400_______ = ____800________
2005
2006
2007
Calculating Real GDP (base year 2005)
___1_____ per milk ×__100______ milk = __100_____
___2____ per honey ×___50____ honey =__100______
___1_____ per milk ×__200______ milk = __200_____
___2____ per honey ×___100____ honey =__200______
___1_____ per milk ×__200______ milk = __200_____
___2____ per honey ×___100____ honey =__200______
2005
2006
2007
Total Market Value for Milk ___100_______ + Total Market Value for Honey ___100_______ = ____200_________
Total Market Value for Milk ___200_______ + Total Market Value for Honey ___200_______ = ____400_________
Total Market Value for Milk ___200_______ + Total Market Value for Honey ___200_______ = ____400_________
2005
2006
2007
GDP deflator = Nominal GDP/Real GDP × 100
____200________/____200________ × 100 = _____100________ or ____N/A________ % increase
_____400_______/____400________ × 100 = ____100_________ or ___0_________ % increase
___800_________/___400_________ × 100 = ___200__________ or ___100_________ % increase
$2
$2
$4
Quantity of Honey
50
100
100
Stagflation

Stagnant and inflation, is a decline in real GDP
combined with a rise in price level
Extra Credit
The country of Terrorville produces two goods: footballs and basketballs. The
following is a table showing the prices and quantities of output for three years.
Due Today
Chapter 23
Chapter 5 + 6
1. YouTube Video - Episode 20
2. YouTube Video - Episode 21
1. Youtube Video - Episode 15
3. YouTube Video - Episode 22
Elasticity of Demand
4. Homework - The Underground
2. Youtube Video - Price Floors
Economy, pg. 520-521
Ceilings
5. Homework - Who Wins at the
3. Homework Article - Energy
Olympics, pg. 524
Demand
6. Chapter 23 GDP Practice Review
7. All about GDP
4. Chapter 5 + 6 Notes
5. Mankiw Practice Review – Ch. 6 8. Gross Domestic Product Practice
Worksheet
6. Chapter 4 - Elasticity of Demand, 9. Daily Tens
Determinants of Elasticity of
10.Chapter 23 Notes
Demand
11.GDP Population WebQuest
7. Free Response Ch. 5 + 6
12.Free Response - GDP
13.Measuring the standard of living
8. Chapter 6 - Price Floors and
(Per Capita GDP Wksht.)
Ceilings
14.Terms
Formulas
• GDP Deflator = Nominal GDP/Real GDP X 100
• Inflation Rate = GDP Deflator in year 2 – GDP Deflator in year 1 x 100
GDP Deflator in year 1
• Per Capita GDP = Total GDP/Population
a.
i.
One point is earned for calculating the nominal GDP for
2010 as $145 (= 20 + 100 + 25).
ii. One point is earned for calculating the real GDP in 2010 as
$100 (= 20 + 60 + 20).
iii. One point is earned for calculating GDP deflator 145/100 x
100 = 145
b. One point is earned for calculating the inflation rate as 10
percent
55-50/50 x 100 = 10 percent
2008 Form B
a.
One point is earned for calculating today’s GDP =
($6 x 400) + ($2 x 1,000) + ($2 x 800) = $6,000.
b.
• One point is earned for stating that the inflation rate is 50 percent
[(150-100)/100].
• One point is earned for calculating this year’s real GDP
= $6,000/1.5 = $4,000
2007 AP Macro
a.
b.
c.
d.
Not included – second hand sale
Included – new service provided in 2006
Included – commissions are a new service
Not included – production outside the U.S. is
not included
2011 Free Response
2008 Free Response
2007 Free Response
Mankiw Practice Ch. 23
a. Consumption
b. No, because that transaction is a purchase of an
asset, not a purchase of currently produced
capital goods.
c. It means that imports exceed exports.
Mankiw Practice Ch. 23
a. 100, 200, 400
b. 100, 100, 100
Mankiw Practice Ch. 23
a.
b.
c.
d.
e.
f.
g.
h.
700
700
770
720
100
107
107 – 100/100 = .07 or 7%
Price Change, percentage change in GDP was
10%, 7% was due to price change.
Mankiw Practice Ch. 23
a. Year 1, because the deflator = 100.
b. Prices rose 20 percent and real output stayed
the same.
c. Prices stayed the same and real output rose 25
percent.
Binder Check (Due Today)
1.
2.
3.
4.
5.
6.
7.
Mankiw Practice Review
Free Response Questions
Nominal and Real GDP Practice Activity
Daily Tens
Notes (Ch. 23)
Terms (if not exempt)
All about GDP
Formulas Chapter 23

GDP Deflator = Nominal GDP/Real GDP X100

Inflation Rate = GDP Deflator in year 2 – GDP Deflator in year 1 x 100
GDP Deflator in year 1

Per Capita GDP = Total GDP/Population