MGEA06 LEC1

GDP (Expenditure Approach)

GDP = C + I + G + (X - M)

Value Added

Value added = Value of sales - Value of intermediate goods

GDP (Income Approach)

GDP = Wages + Rent + Interest + Profits + Non-factor payments

Nominal GDP

Nominal GDPₜ = Σ(Pᵢ,ₜ × Qᵢ,ₜ)

• (Quantity in Current Year×Price in Current Year)

Measures the total value of all goods and services produced in a country using current year prices.

• It increases due to either more production or higher prices

Real GDP

Real GDPₜ = Σ(Pᵢ,base year × Qᵢ,ₜ)

• (Quantity in Current Year×Price in Base Year)

Measures the total value of goods and services, but adjusted for inflation (uses base year prices).

• It only increases if there’s more production, not just higher prices.

CPI

CPIₜ = (COBₜ / COB_base year) × 100

GDP Deflator

GDP Deflatorₜ = (Nominal GDPₜ / Real GDPₜ) × 100

Inflation Rate from CPI

Inflation Rate = ((CPI₂ - CPI₁) / CPI₁) × 100%

Inflation Rate from GDP Deflator

Inflation Rate = ((GDP Deflator₂ - GDP Deflator₁) / GDP Deflator₁) × 100%

Consumer Price Index

CPI = (COBt) /COBbaseYear) × 100

• Choose a fixed basket of goods (e.g. 100 apples, 50 shirts).

• Calculate the cost of buying this same basket in different years.

• Compare the costs over time using the base year as a reference.