Keeping Score: "Is my economy bigger than your economy?" What might this mean as the title to a chapter? Let me give you a hint... Gross Domestic Product, more known as GDP -- a number used to to represent the total value of all goods and services produced in an economy. In Mr. Wheelan's knowledgable book it explains perfectly why GDP is important (also why GDP isn't perfect) and the different kinds of GDP there are. First of all the different kinds of GDP are: real GDP (constant dollars), nominal GDP (current dollars) , and GDP per capita. What does it mean if a country's economy has real (constant)GDP? It means that the GDP for a country has been adjusted to account for inflation. In more simplified terms it means that it is a country's total output of goods and services, adjusted to a certain price change. While nominal GDP means that is not adjusted to account for inflation. Basically meaning, the current price of the output of dollars in a given year. English please...? Ok well let me give you an example ッ Suppose a country, lets say Germany, manufactured 5 BMW's in 1 year at a price of 1,000 euros each; therefore, the total being 5,000 euros in 1 year. In the second year it produced the same amount of (5) BMW's, however the price of the BMW's increased to 1,500 euros each or 7,500 euros in total of that year. Assuming that the 1st year is the base year to calculate real GDP. In year 1, the nominal GDP was 5,000 euros and so was the real GDP(5,000euros). Here's the catch --> In year 2, the nominal GDP was 7,500 euros; while the real GDP is only 5,000 euros. Why? Well because in year 1, constant dollars, 5,000 euros worth of BMW's was produced. This is because by extinguishing the effect of price changes, it allows economists to analyze a countries outputs and services. For more clarification about real GDP and nominal GDP watch this exceptional video to help you distinguish the two economics terms: In order to watch the following film analysis about the famous film--Back To The Future-- I need to tell you about GDP per capita. Essentially it is a nations GDP divided by its population. A mind-boggling example used in the book is~ and I quote~ "Again, this adjustment is necessary to prevent widly misleading conclusions. India has a GDP of $3.3 trillion while Israel has a GDP of $201 billion. Which is the richer country? Israel by far. India has more than a billion people while Israel has only 7 million; GDP per capita in Israel is $28,300 compared to only $2,900 in India." (pg 194) As you can see, if an economy grows less in comparison to the population; then the GDP per capita will fall because, "the country is producing more goods and services, but not enough more to keep up with a population that is growing faster." (pg 194) Now lets take a look at these economics terms being amplified in the movie Back To The Future
1 Comment
Corey Topf
4/14/2014 11:57:13 am
Stefan, these are cool videos and highlight some important aspects of GDP. But remember what we talked about in class. "You truly understand something when you can explain it simply." And, when you synthesize information from class, give it your own flare, evaluate it, etc. Why is GDP a good measurement of growth, and what are its downfalls? Try to be more concise and organized here.
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BloggerMy name is Stefan Stangl and I am originally from San Francisco, California. Currently, I am senior at Colegio Franklin Delano Roosvelt in Lima, Peru. My passions are sports and art. Personal: @Stefan6 School: @fdrinnovationacademy ♫Tweet me ♫
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