The GDP Deflator is a
general price index that corresponds to the price change exhibited by a very large market
basket - all final goods and services produced. An important point to note is that the market
basket of goods changes every year depending on current production. In other words, the
market basket is not fixed. The GDP Deflator is useful for measuring economy-wide inflation.
The current base year is 1992.
The Consumer Price Index (CPI) is different than the GDP deflator. First, a relatively small
market basket (364 items) is used. Second, the market basket is fixed from year-to-year.
Finally, the CPI measures consumer price changes and does not directly measure the price
changes of items purchased by businesses and government.
The net result of all these differences is very small. However, the CPI tends to overstate the
inflation rate because its market basket is fixed and does not consider that consumers will
substitute away from goods that have risen dramatically in price . However, the CPI is useful
for measuring inflation in the consumer goods sector.
e: Calculate real GDP, using nominal GDP and the GDP deflator.
Example: Nominal GDP was $2.5 billion in 1992 and $3.5 billion in 1998. If the GDP deflator
was 100.0 in 1992 and 112.7 in 1998, what is the change in real GDP over the period both in
dollars and in percentage terms?
Answer:
1.
Nominal GDP
in 1992 = $2.5 billion.
2.
1998 GDP in 1992 dollars = $3.5 (100.0/112.7) = $3.1 billion.
3.
Increase in dollars: $3.1 - 2.5 = $0.6 billion. Increase in percent: [(3.1 - 2.5) = .24 or
24%. Although nominal GDP rose by over 40% during the period, the real production
of the economy only rose by 24%.
Real GDP current period = nominal GDP current period x (GDP deflator base year / GDP
deflator current period)
f: Discuss the major limitations of GDP.
Limitations with using GDP as a measure of economic activity:
1. GDP does not count non-market production--specifically, homemaker services.
2. GDP does not count the underground economy--illegal activities and tax evasion.
3. GDP does not measure the value of leisure activities, the standard of living accounted for
by a shorter workweek, and changing working conditions.
4. GDP does not measure the changing quality of goods and services.
5. GDP does not measure the cost of pollution and damage to the ecology.
找金融资料，就到一览金融文库