GROSS DOMESTIC PRODUCTS

- the market value of all final goods and services produced within a nation in a given year 

Not included-

- intermediate goods (somthing that needs further process) 

- used or secondhand goods (already bought)

- Purely financial transactions (stocks and bonds)

- Illegal activites (ola-drugs)

- Unreported buisness activites (tips)

- Non market activites (volunteering, babystiing, working on own property)

- Transfered payments (scholarships, wellfare payments, social security)

Included-

- (65%) "C" personal consumption expenditures (tip)

- (17%) "IG" gross private domestic investment

-

.factory equipment maintenance 

.new factory equipment

.new constuction of housing

.un-sold inventory of products built in a year

-(20%) "G" government spending

-(-2%) "Xn" net exports (exports-imports)

GNP

Gross national product -total market value of all final good and services, by citizens of that country on its land or foreign land)

Nominal GDP

-value of output produced in current year prices

Real GDP

-The value of output produced in constant base year prices

-adjusted for inflation

If wanted to measure economic growth, use "real GDP"

If wanted to measure in increase in prices (inflation), use "nominal gdp"

Nominal GDP can increase from year to year if either price or quantity increases

Real GDP can increase from year to year only if output increases

Price X Quantity

GDP deflator

- price index used to adjust from nominal to real GDP

-in the base year GDP deflator always equal 100

-for years after the base year GDP deflator is greater than 100

-for years befor the base year GDP is less than 100

Nominal gdp / Real gdp X (100)

Consumer Price Index

- most commonly used for inflation

-measures the cost of market basket of goods of a typical urban american family

Cost of a market basket of goods in a given year / over a cost of a market basket of goods of a base year X (100)

Inflation rate

Price index in yr 2 - price index in yr 1 / price index in year 1 X (100)

N-O/O(100)

Nominal interest rate

-precentage increase in money, the borrower must pay the lender for a loan

-not adjusted for inflation

Real interest rate

-precentage increase in purchasing power, the borrower must play the lender for a loan

-adjusted for inflation

-(nominal interest rate - inflation)

-unanticipated inflation (not expected)

Anticipated inflation

-fisher effect

*nominal interest rate

(Expected interest rate + Inflation premium)

Inflation

Hurt

-savers

-lenders/creditors

-people who are on a fixed income (elderly, S.S, welfare, Medicade)

Helped

-debtors

C.O.L.A (cost of living adjustments)

-automatic wage increase when inflation occurs