Economics — 30 MC and 2 FRQs in 45 minutes

GDP

Dollar value of all final goods and services produced within a countries borders in a year

How is GDP used

• comparing gdp of one year to another to tell us if there is growth

• comparing gdp before and after a policy to see if it was effective

What is included in GDP?

C - Consumer Spending IB - Business Investments G - Government Spending Nx - Exports-Imports so GDP = C+IB+G+Nx

What is not included in GDP?

PAPAYAS. P - Payments from government (Non production transaction) A - Anything Illegal (Non Market) P - Products that arent final (intermediate goods) A - Anything Used (Non Production) Y - Your leisure time (Non Market) A - Anything for which you dont get paid for S - Stocks and Bonds (Non production)

What is GDP not used for?

• environmental quality and resource depletion

• quality of life

• Poverty and economic inequality

What is the difference between Real GDP and Nominal GDP

Nominal GDP is what you see

Nominal GDP Formula

C+IB+G+Nx

GDP Per capita formula

GDP/population or RGDP/population

Real GDP (RGDP) formula

RGDP = (Nominal GDP/Deflator) x 100

GDP Growth rate / output formula

((Current year's GDP - Last year's GDP)/ (Last year's GDP)) x 100

((RGDP2-RGDP1)/(RGDP1)) x 100

GNP

Total market value of all final goods and services in a year from factors of production (resources). It's owned by the countries resources

Why do some countries have higher GDPs?

its usually due to production...

• economic systems

• private ownership of property

• education levels

• Kapital Stock

• Efficient financial institutions

• Free Trade

What is inflation

A rise in general price level

What is the normal economic growth?

its usually 2-4%

What should happen in order for economic growth to be real?

Inflation should always be less than economic growth rates

Causes of inflation

Printing too much money demand - pull inflation cost - push inflation

Who is hurt by inflation?

fixed income receivers Government Workers Landlords Savers Creditors

Who is helped by inflation

Flexible income receivers Debtors

What is the CPI?

Measures the cost of living over time

How is CPI calculated?

1. Fix the basket

• Identify the goods and services a customer buys

• Find Prices

3. Calculate basket total

4. Choose a base year

Note: CPI doesn't include taxes or investment items

What is the CPI formula?

CPI = (current cost of basket/base year) x 100

GDP Deflator formula

(Nominal GDP/Real GDP) x 100

In 1995

country X's overall CPI was 200

Country X has a CPI rate of 312.7 in 1996. The same country X has a CPI of 420.5 in 2006. What is the inflation rate?

(420.5-312.7)/312.7 x100 = 34.47% is the inflation rate