gdp - inflation note 20 juin 2013

8/14/2019 Gdp - Inflation Note 20 Juin 2013

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Nominal GDP uses current prices to place a value on the economys productionof goods and services. Real GDP uses constant base-year prices to place a valueon the economys production of goods and services. Because real GDP is not

affected by changes in prices, changes in real GDP reflect only changes in theamounts being produced. Thus, real GDP is a measure of the economysproduction of goods and services.


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GDP deflator, which reflects only the prices of goods and services

GDP deflator = (Nominal GDP/ Real GDP)"100.

GDP deflator reflects whats happening to prices, not quantities.

The inflation rate is the percentage change in some measure of the price level

from one period to the next. Using the GDP deflator, the inflation rate betweentwo consecutive years is computed as follows:

Inflation rate in year 2 = ((GDP deflator in year 2 GDP deflator in year 1) /

GDP deflator in year 1)"100.


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Producer Price Index (PPI) :

a measure of the cost of a basket of goods and services bought by firms

Economists and policymakers monitor both the GDP deflator and the con-sumer price index to gauge how quickly prices are rising

Yet two important differences can cause them to diverge.The first difference is that the GDP deflator reflects the prices of all goods andservices produced domestically, whereas the consumer price index reflects the

prices of all goods and services bought by consumers

The second and subtler difference between the GDP deflator and the consumerprice index concerns how various prices are weighted to yield a single number

for the overall level of prices


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Nominal interest rate :the interest rate as usually reported without a correction for the effects of

inflation.

Real interest rate :the interest rate corrected for the effects of inflation

Real interest rate = Nominal interest rate Inflation rate.

Productivity

The quantity of goods and services produced from each unit of labor input


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How Productivity Is Determined

Physical capital

the stock of equipment and structures that are used to produce goods andservices

Human capitalthe knowledge and skills that workers acquire through education, training, and

experience

Natural resourcesthe inputs into the production of goods and services that are provided by nature,

such as land, rivers, and mineral deposits

Technological knowledgesocietys understanding of the best ways to produce goods and services

gdp - inflation note 20 juin 2013

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