Consider the following data on U.S. GDP: Nominal GDP (in billions of dollars)

step 1 Once again, welcome to new problems. This time we're dealing with economics and when you talk ab

Consider the following data on U.S. GDP: Nominal GDP ...

Key Concepts

Adjusting for Inflation

Adjusting for inflation involves converting nominal values into real values by using a price index like the GDP deflator. This process isolates changes in the quantity of goods and services produced, rather than changes in prices, thereby providing a clearer picture of economic growth and enabling more accurate comparisons over time.

Growth Rate Calculation

The growth rate calculation involves determining the average annual rate at which a variable, such as GDP or the GDP deflator, increases or decreases over a specified period. This is often computed using the formula for compound growth, which considers the final value relative to the initial value over the number of periods, allowing for a consistent and standardized comparison of growth over time.

Real GDP

Real GDP is the measure of economic output adjusted for changes in the price level, typically using prices from a base year. This adjustment removes the distortions caused by inflation or deflation, providing a more accurate reflection of an economy’s true growth in output over time. By using constant prices, economists can compare economic performance across different periods reliably.

GDP Deflator

The GDP deflator is an index that measures the overall change in prices for all goods and services included in GDP. It is calculated as the ratio of nominal GDP to real GDP multiplied by 100, which allows economists to adjust nominal GDP for inflation and obtain real GDP. The GDP deflator differs from other price indexes because it includes prices of all domestically produced goods and services.

Nominal GDP

Nominal GDP represents the total market value of all final goods and services produced in an economy over a specific period, measured at current market prices. Since it is not adjusted for changes in the price level, nominal GDP can be influenced by both changes in production and changes in prices (inflation or deflation), making it less suitable for comparisons over time without further adjustments.

Transcript

00:03 Once again, welcome to new problems.

00:05 This time we're dealing with economics and when you talk about economics, they macroeconomics and then there's also micro uh economics and in this sense in macroeconomics, you're dealing with a whole uh economy.

00:25 And one of the things that you deal with is the gdp gdp is the growth domestic product.

00:33 Gdp is the gross domestic product.

00:37 And the uh components if you want to call it that the components of the gross domestic product are connected to all forms of production that are tied to an economy, a country's economy.

00:57 So um when you explain gdp gdp becomes the uh total production, total production.

01:11 Uh huh.

01:12 Good and services.

01:16 Total production of goods and services in an economy.

01:21 So that's what you're looking at.

01:23 You're looking at the production of goods and services uh in an economy.

01:28 And then of course your uh excluding excluding the mm mhm.

01:42 Excluding the uh the exports.

01:48 Because you're also looking at the exports.

01:50 And if you if you want to look at the contributors, if you want to look at the contributors of g.

01:58 D.

01:58 P.

01:59 Uh one of the things you're looking at is um income, obviously you're also looking at things like investments, you're looking at investments.

02:11 Uh there are many other factors that you're looking at more.

02:15 So you uh looking at all the things that come together such that you're building an economy, you're building an actual actual economy, that's what you're doing.

02:30 So that obviously different types of g.

02:33 D.

02:33 P.

02:33 Uh you're gonna come across nominal gdp real gdp uh and then also in terms of understanding the impact of gdp on living standards, you have prizes and under prizes.

02:50 You have uh c.

02:52 P.

02:52 I.

02:52 Which is the consumer consumer price index and uh the c.

02:58 B.

02:59 I.

03:00 If you want to define it, it's pretty much the value of the prices of a basket of goods and services in a typical uh economy.

03:12 So you're looking at the prices of goods and services uh in a typical uh economy.

03:19 So we're saying that or maybe you go in and you collect a bunch of products, a typical uh basket of products and you in an urban environment for example.

03:39 So you're looking at the basket the basket of goods goods and services and within this basket you looking at the changes in prices over time changes in prices, uh pride of the time and this is based on awful many factors including inflation.

04:05 They've done many factors including inflation to come back to our problem.

04:10 We do have a new problem here and uh in this particular problem, what we're saying is that we have a table uh and the table shows us two years 2014 and 1994.

04:28 Uh 2014 and 1994.

04:32 And uh in 2014 we do have the nominal gdp you have the nominal gdp and this is in billions of dollars.

04:47 That's for the u.

04:48 S.

04:49 Gdp.

04:51 And then also we do have the g.

04:55 D.

04:55 P.

04:56 This later and we're gonna use the base year of 2009 2009.

05:05 Uh the year 2009 is going to be a benchmark.

05:08 And that's not a surprise because uh in 2009 we had a recession.

05:13 So obviously uh you can think about that as a base here but that's not the only reason why you picked that one.

05:21 Uh so this is 17 4 19.

05:24 This is and billions of dollars.

05:25 And then we also have the g.

05:27 D.

05:27 P.

05:28 Of all these values and you can see that uh compared to 2014 uh the gdp in 2014 was eight points higher than in 2000 nine.

05:45 And almost 20 something points for 27 26.4 points lower uh than it was uh in 1994 compared to 2009.

05:57 So in part a this problem mm determined becoming the growth weight.

06:09 The growth rate of nominal nominal gdp between uh 1994 and 2014.

06:24 So you want to get the growth rate uh the nominal gdp between these two years so we're just gonna jump right into it and see what happens with this.

06:34 If we're looking at the growth rate for g.

06:36 D.

06:36 P.

06:37 Uh we'll say uh the growth rate i'm going to say the growth rate of nominal nominal gdp is the same as uh taking the we're using a specific formula 100.

06:57 And then we multiplying that by phenomenal nominal gdp in 2014.

07:05 And then we're also doing the same thing, nominal gdp mm hmm, 1994.

07:16 We have uh exponential factor.

07:18 We subtract one and then we compute the bracket and then the next step.

07:23 And the problem is to plug in uh the requisite numbers.

07:28 So we do have uh 17,000 remember this is in billions of dollars, billions to council out.

07:35 Uh this is a .45 -1.

07:39 Close the rocket.

07:42 And then we simplify the problem...