Answer to Question #286047 in Macroeconomics for Sheya

Question

Find data on GDP and its components, and compute the percentage of GDP for the following components for 1950, 1975, and 2000.

a. Personal consumption expenditures; b. Gross private domestic investment; c. Government purchases; d. Net exports; e. National defense purchases; f. State and local purchases; g. Imports

* Do you see any stable relationships in the data? Do you see any trends? (Hint: A good place to look for data is the statistical appendices of the Economic Report of the President, which is written each year by the Council of Economic Advisers. Alternatively, you can go to www.bea.doc.gov, which is the Web site of the Bureau of Economic Analysis.)

Answer 1

Nominal GDP is the total value of goods and services measured at current prices. Therefore, $Nominal= (P 2000 x Q2000) + (P 2000bread x Q 2000bread )$

$= ($50,000 x 100) + ($10 x 500,000)$

$Nominal GDPx Q 2010bread )$

$= ($60,000 x 120) + ($20 x 400,000) = $7,200,000 + $8,000,000 = $15,200,000.$

Real GDP is the total value of goods and services measured at constant prices. Therefore, to calculate real GDP in 1950 (with base year 2000), multiply the quantities purchased in the year 1975 by the 2000 prices: Real GDP1950.

$= ($50,000 x 120) + ($10 x 400,000) = $4,000,000 = $10,000,000.$

Real GDP for 2000 is calculated by multiplying the quantities in 2000 by the prices in 2000. Since the base year is 2000, real equals nominal GDP2000, which is $10,000,000. Hence, real GDP stayed the same between

2000 and 1950.

The implicit price deflator for GDP compares the current prices of all goods and services produced to the prices of the same goods and services in a base year. It is calculated as follows:

Nominal GDP

                                        Implicit Price Deflator1950 =                                

Real GDP2010

Using the values for Nominal GDP1950 and real GDP1975 calculated above:

This calculation reveals that prices of the goods produced in the year 1950 increased by 52 percent compared to the prices that the goods in the economy sold for in 2000. (Because 2000 is the base year, the value for the implicit price deflator for the year 2000 is 1.0 because nominal and real GDP are the same for the base year.)

The consumer price index (CPI) measures the level of prices in the economy. The CPI is called a fixed-weight index because it uses a fixed basket of goods over time to weight prices. If the base year is 2000, the CPI in 1975 is an average of prices in 1975, but weighted by the composition of goods produced in 2000. The CP12000 is calculated as follows:

$(Pflrs10 x ) + CP12010 - (Pta$16,000,000 $10,000,000 = 1.6.$