MONITORING THE MACROECONOMY
GDP and the
Standard of Living
Describe how economic statisticians measure GDP in the United States.
Explain the limitations of calculating real GDP. Explain the difference between GDP, standard of living and quality of life index.
Current prices (NORMINAL VS REAL)
Year Q P GDP
GPD deflator = (NGDP/RGDP) X100
$20/$10 = 200 GDP deflator
Real GDP is adjusted for inflation = NGDP X 100 GDP deflator
= 20 x 100 200 = $10
Final goods vs.Intermediate goods
Final good or service
Where ? And when?
Why measure GDP
GNP measures the market value of all final goods and services produced by a nation’s residents, no matter where they are located.
Under GDP physical location is important and under GNP citizenship is important. Why change?
NDP = GDP –Depreciation
profit is a firm’s profit before subtracting the depreciation of capital.
We use estimates of real GDP for two main purposes:
As you listen to the news, look for references to GDP. How is GDP used in daily life?
Is the news about nominal GDP or real GDP? Is the term used correctly?
Using U.S.GDP person, how does your income compare to the average income?
How do you think your standard of living compares with that of a student in France or China?
Do you produce more market goods than nonmarket good? How can you value your nonmarket production?
Is your production counted in the nation’s output?