Unit 2 notes: 02/01/16
continued

Formulas: 
(NDP) Net Domestic Product= GDP - depreciation (consumption of fixed capital) 

(GNP) Gross National Product= GDP - net foreign factor payment 

(NNP) Net National Product= GNP - depreciation 

Nominal GDP- (quantity) = PxQ
-Measures inflation 
-Value of output produced in current year prices 
-Can increase from year to year if either output or prices increase 

Real GDP- (Output) = Current Year Output x Base Year Prices
-Value of output (quantity) produced in constant or base year prices 
-Adjusted for inflation
-Can increase from year to year only if quantity increases

If we want to measure economic growth, we will use Real GDP.
If we want to measure price increase (inflation), we will use Nominal GDP.

GDP Deflator- Price index used to adjust from nominal to real GDP. 
To calculate: Nominal GDP   x 100
                            Real GDP      
In base year, GDP deflator = 100
Years after base year, GDP deflator> 100
Years before base year, GDP deflator< 100

(CPI) Consumer Price Index- most commonly used measurement of inflation
-measures market basket of goods  for a typical urban american family 
To calculate: Price of market basket of goods in current year x 100
                      Price of market basket of goods in base year