Chapter 23: Measuring a Nation’s Income §

(F) Day of the week: Friday Class: IS206 Created Time: March 6, 2020 2:12 PM Database: Class Notes Database Date: March 6, 2020 2:12 PM Days Till Date: Passed Last Edited Time: June 9, 2021 10:42 AM Type: Lecture

Gross Domestic Products §

The united used to measure the size of an economy is usually GDP

GDP measures the market value for Final good and services produced within the country within an period of time

The spent currency still ends up inside the economy ⇒ Total Income == Total Expenditure

Formula §

$$GDP=C+I+G+(Ex-Im)$$

Excluded Products §

• Volunteer Work: doesn’t involve currency transaction

• Intermediate Goods: input products is counted in Final Product, depends on the use of the purchased good

• Illegal Products: market value cannot be accurately tracked

• Resold Product: the product was already consumed once and counted in the market.

• Stock(High Risk) and Bonds(Low Risk): are transactions which don’t produce goods and services

  Outcome from Stocks and Bonds might contribute to GDP later on.

• Transfer Payment: Government Payment to groups without expectation of goods/services

  • Social Security
  • Pension
  • Unemployment Benefits

Nominal GDP §

$$NominalGDP=\sum _t^n(P_t\times Q_t)$$

Calculates the Economy’s GDP with the current year’s market values for each products.

• Account for both Price Change and Quantity Change

Real GDP §

$$RealGDP=\sum _t^n(P_{t_B}\times Q_t)$$

Calculate the Economy’s GDP with the base year’s market value for each products

• Account for Quantity Change but ignores Price Change using base year B

GDP Deflator §

$$GDPDeflator=\frac{NominalGDP}{RealGDP}\times 100$$

Calculate the Change in Economy Price

• Account for Price Change (inflation rate) but ignores Quantity Change

Inflation: GDP Deflator > 100

Deflation: GDP Deflator < 100

$$PercentageChange=\%\Delta Value=\frac{NewValue-OldValue}{OldValue}\times 100\%$$

Nominal GDP | Real GDP isn’t certainly in the same direction

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