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  3. in this handout you will first review three macro concepts...

Question: in this handout you will first review three macro concepts...

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In this handout you will, first, review three macro concepts: GDP, real and nominal magnitudes, and growth rates. Second, you will do an exercise designed to help you become familiar with the FRED database. 1. GDP (Gross Domestic Product) Definition: The market value of all final goods and services produced in a country over the course of a year. 1. Given this definition, are the following items included in GDP? Why/why not? a) A house built 10 years ago. No, v pvr( 서.( :, tia (o-ne) he«U b) Stocks (shares held in a publicly traded company, e.g. shares of Apple). In 2017, US GDP was $19,485 trillion. GDP per capita was $59,774. What is the difference between GDP and GDP per capita? 2. 2. Real versus nominal magnitudes Nominal values are measured in current prices. Real values are measured in constant prices. a) What happens to a nominal measure if prices double? Iwoy deubl b) What happens to a real measure if prices double? c) You have a nominal income of $30,000 in 2016 and a nominal income of $15,000 in 2005. Prices double between 2005 and 2016. Are you better off in 2016? ow do we get from nominal values to real values? We use a price index to measure the price level in the economy. Common price indices include: 1. The GDP deflator: defined as nominal GDP relative to real GDP. Nominal GDP GDP deflator Real GDP 100 The Consumer Price Index (CPID: the price level of a market basket of goods and services consumed by a typical urban household. 2. A price index is always measured in terms of a base year. For example, if you go to the Federal Reserve Bank of St. Louis website (www.fred.stlouisfed.org), and search for the consumer price index, you will see that the annual data is presented in 2010 dollars. In other words, 2010 is the base year, and all other prices are measured relative to 2010 prices. The base year is always set equal to 100. For 2009-2011 Year CPI (2010 dollars) 2009 98.396 2010 100.000 2011 103.158 In 2011, the CPI is greater than 100. So, the price level increased between 2010 and 2011. In 2009, the CPI is less than 100. So, the price level was lower in 2009 than in 2010. o o

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