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The PowerThe Power

Of Of MacroeconomicsMacroeconomics

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An Overview Of ModernAn Overview Of Modern

MacroeconomicsMacroeconomics

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Lesson 1Lesson 1 Colander Colander McConnellMcConnell Samuelson &Samuelson & Schiller Schiller

& Brue& Brue NordhausNordhaus

33rdrd EditionEdition 1414thth EditionEdition 1616thth EditionEdition 88thth EditionEdition

Complete Textbook Complete Textbook (includes both Micro-and(includes both Micro-and

Macroeconomics)Macroeconomics)

Macroeconomics TextMacroeconomics Text

OnlyOnly

7, 87, 8 7, 87, 8 20, 2120, 21 5, 6, 75, 6, 7

7, 87, 8 7, 87, 8 4, 54, 5 5, 6, 75, 6, 7

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Lesson One Part 1Lesson One Part 1 55


in Our Personal Livesin Our Personal Lives

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in Our Professional Livesin Our Professional Lives

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The Real Power of MacroeconomicsThe Real Power of Macroeconomics

3 Macroeconomics can help answer theseMacroeconomics can help answer these

questions because it arms us with a newquestions because it arms us with a new

way of thinking about the world we liveway of thinking about the world we live

and work in.and work in.3 Indeed, this is the real power of Indeed, this is the real power of

macroeconomics, it helps us filter andmacroeconomics, it helps us filter and

sort and process all of the information wesort and process all of the information weare bombarded with every day in theare bombarded with every day in the

media.media.

3 Macroeconomics can help answer theseMacroeconomics can help answer these

questions because it arms us with a newquestions because it arms us with a new

way of thinking about the world we liveway of thinking about the world we live

and work in.and work in.3 Indeed, this is the real power of Indeed, this is the real power of

macroeconomics, it helps us filter andmacroeconomics, it helps us filter and

sort and process all of the information wesort and process all of the information weare bombarded with every day in theare bombarded with every day in the

media.media.

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Seeing Patterns and TrendsSeeing Patterns and Trends

FEDERAL RESERVE

ValueValue

of Yenof Yen

fallsfalls

relativerelativetoto

dollar dollar

FederalFederal

ReserveReserve

Bank Bank

raisesraises

interestinterest

ratesrates

Coffee beanCoffee bean

shortage inshortage in

BrazilBrazil

A fall inA fall in

consumer consumer

confidenceconfidence

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3 Jim Wells used to own a manufacturing business thatJim Wells used to own a manufacturing business that

made high precision components for computer games.made high precision components for computer games.3 Every July, Jim had to decide how many components toEvery July, Jim had to decide how many components to

produce for the upcoming holiday season, and everyproduce for the upcoming holiday season, and every

year, he had simply doubled his production.year, he had simply doubled his production.

– Since he never had any trouble moving the inventory, JimSince he never had any trouble moving the inventory, Jimdecided to do the same thing again -- even though it meantdecided to do the same thing again -- even though it meant

taking out a big short term loan to finance the expansion.taking out a big short term loan to finance the expansion.

3 Jim Wells used to own a manufacturing business thatJim Wells used to own a manufacturing business that

made high precision components for computer games.made high precision components for computer games.3 Every July, Jim had to decide how many components toEvery July, Jim had to decide how many components to

produce for the upcoming holiday season, and everyproduce for the upcoming holiday season, and every

year, he had simply doubled his production.year, he had simply doubled his production.

– Since he never had any trouble moving the inventory, JimSince he never had any trouble moving the inventory, Jimdecided to do the same thing again -- even though it meantdecided to do the same thing again -- even though it meant

taking out a big short term loan to finance the expansion.taking out a big short term loan to finance the expansion.

Jim Wells’ DecisionJim Wells’ Decision

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What Jim Wells IgnoredWhat Jim Wells Ignored

3

Unfortunately, Jim’s college studiesUnfortunately, Jim’s college studiesnever included a course innever included a course in

macroeconomics so he missed somemacroeconomics so he missed some

rather significant danger signsrather significant danger signs.

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FEDERAL RESERVE

IndividualsIndividuals

GiveGive

DollarsDollarsto Fedto Fed

SellSell

Bonds toBonds to

PublicPublic

IndividualsIndividuals

have lesshave less

money tomoney to

spendspend PossiblePossibleRecessionRecession

Some Danger SignsSome Danger Signs


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More Warning SignsMore Warning Signs

Consumer LessConsumer Less

Confidence =SpendingConfidence =Spending

RecessionaryRecessionary

ImplicationsImplications++


Unemployment = LessUnemployment = Less

SpendingSpending

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More Warning SignsMore Warning Signs

ExpansionaryExpansionary

MonetaryMonetary

PolicyPolicy

JapaneseJapaneseImports IntoImports Into

US BecomeUS Become

LessLess

ExpensiveExpensive

Value of Value of

YenYen

RelativeRelative

to Dollar to Dollar

Decrease inDecrease inDemand For Demand For

Jim’sJim’s

Computer Computer

ComponentsComponents


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Disaster StrikesDisaster Strikes

3

So Jim got caught with his proverbialSo Jim got caught with his proverbialpants down.pants down.

3 By October, the Japanese had taken over By October, the Japanese had taken over

half of a market that was already shrinkinghalf of a market that was already shrinking

fast from the onset of a recession.fast from the onset of a recession.

3

So Jim got caught with his proverbialSo Jim got caught with his proverbialpants down.pants down.

3 By October, the Japanese had taken over By October, the Japanese had taken over

half of a market that was already shrinkinghalf of a market that was already shrinking

fast from the onset of a recession.fast from the onset of a recession.

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Disaster StrikesDisaster Strikes

3 By Thanksgiving, Jim found himself By Thanksgiving, Jim found himself

sitting on a huge inventory that hesitting on a huge inventory that he

couldn’t give away, and by December hecouldn’t give away, and by December he

was unable to pay a huge loan thatwas unable to pay a huge loan thatwouldn’t go away.wouldn’t go away.

3 By June, he was bankrupt.By June, he was bankrupt.

3 By Thanksgiving, Jim found himself By Thanksgiving, Jim found himself

sitting on a huge inventory that hesitting on a huge inventory that he

couldn’t give away, and by December hecouldn’t give away, and by December he

was unable to pay a huge loan thatwas unable to pay a huge loan thatwouldn’t go away.wouldn’t go away.

3 By June, he was bankrupt.By June, he was bankrupt.

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Jim Meets TeresaJim Meets Teresa

3

Today, Jim works as a consultant for oneToday, Jim works as a consultant for oneof his old Japanese competitors duringof his old Japanese competitors during

the day and studies macroeconomics atthe day and studies macroeconomics at

night in an executive MBA program.night in an executive MBA program.

3 He sits in the front row of class right nextHe sits in the front row of class right next

to Teresa.to Teresa.

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Teresa’s DreamTeresa’s Dream

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Teresa’s GambleTeresa’s Gamble

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Some Warning SignsSome Warning Signs

3

Sure, Teresa felt a little nervous about choosingSure, Teresa felt a little nervous about choosingthe variable rate, but the mortgage banker toldthe variable rate, but the mortgage banker told

her not to worry.her not to worry.

3 Rates had been stable for over three years now,Rates had been stable for over three years now,

and it shouldn’t be any problem.and it shouldn’t be any problem.3 What Teresa failed to see, however, wereWhat Teresa failed to see, however, were

numerous warning signs of growing inflationarynumerous warning signs of growing inflationary

pressures.pressures.

3

Sure, Teresa felt a little nervous about choosingSure, Teresa felt a little nervous about choosing

the variable rate, but the mortgage banker toldthe variable rate, but the mortgage banker told

her not to worry.her not to worry.

3 Rates had been stable for over three years now,Rates had been stable for over three years now,

and it shouldn’t be any problem.and it shouldn’t be any problem.3 What Teresa failed to see, however, wereWhat Teresa failed to see, however, were

numerous warning signs of growing inflationarynumerous warning signs of growing inflationary

pressures.pressures.

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Inflationary PressuresInflationary Pressures

Demand-Pull SideDemand-Pull Side

UnemploymentUnemployment

Rate ReachesRate Reaches

Eight Year LowEight Year Low

BusinessesBusinesses

Raise PricesRaise Prices

of Goodsof Goods

SoldSold

Higher Higher

Demand For Demand For

GoodsGoods



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Inflationary PressuresInflationary Pressures

Supply of Goods (Cost Push)Supply of Goods (Cost Push)

Bad CoffeeBad Coffee

CropCrop

World-wideWorld-wide

drought anddrought and

food shortagesfood shortages

Reduction in OilReduction in Oil

SupplySupply

Fall in Value of Fall in Value of

the Dollar the Dollar

SupplySupply

DecreasesDecreases

SupplySupply

DecreasesDecreases

ProducersProducers

RaiseRaise

PricesPrices

Price of Price of

ImportsImports

IncreaseIncreasePage Down to advancePage Down to advance


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Disaster StrikesDisaster Strikes3 Within two years, interest rates had climbed into the doubleWithin two years, interest rates had climbed into the double

digits, and Teresa could no longer afford her skyrocketingdigits, and Teresa could no longer afford her skyrocketing

mortgage payments.mortgage payments.

– With the climb in interest rates, the economy plunged into aWith the climb in interest rates, the economy plunged into a

recession -- taking the real estate market down with it.recession -- taking the real estate market down with it.

3 Teresa tried to sell her house at the original price, but finally,Teresa tried to sell her house at the original price, but finally,

facing the humiliation of foreclosure, she unloaded it forfacing the humiliation of foreclosure, she unloaded it for

$25,000 less than she bought it for – losing every cent of her$25,000 less than she bought it for – losing every cent of her

equity.equity.

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The Dismal ScienceThe Dismal Science

3

Despite the enormous impactDespite the enormous impactmacroeconomics has on our personal andmacroeconomics has on our personal and

professional lives, most of us view it as aprofessional lives, most of us view it as a

remote, complicated, and indeed “dismalremote, complicated, and indeed “dismal

science.”science.”

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Some Personal HistorySome Personal History

3

When I first studied and taughtWhen I first studied and taughtmacroeconomics I got quickly buried in amacroeconomics I got quickly buried in a

jumble of graphs and equations. jumble of graphs and equations.

3

I saw that the only way to trulyI saw that the only way to trulyunderstand the importance of understand the importance of

macroeconomics is to teach it within themacroeconomics is to teach it within the

context of its historical evolution.context of its historical evolution.

3 This is important for at least two reasons.This is important for at least two reasons.



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A REAL WORLD CONTEXTA REAL WORLD CONTEXT

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Why History is Important -- IIWhy History is Important -- II3

The second reason to put macroeconomics inThe second reason to put macroeconomics inan historical context is to emphasize that it isan historical context is to emphasize that it is

very much an evolving policy science.very much an evolving policy science.

3 Put simply, the Keynesian solutions which werePut simply, the Keynesian solutions which were

used to lift us out of the Great Depression inused to lift us out of the Great Depression in

the 1930s or to wake us up from the Economicthe 1930s or to wake us up from the Economic

doldrums of the 1960s would be inappropriatedoldrums of the 1960s would be inappropriate

in today's more sophisticated global economy.in today's more sophisticated global economy.

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The Remainder of this First LessonThe Remainder of this First Lesson

3 We’ll briefly define macroeconomicsWe’ll briefly define macroeconomics

and identify key policy issues.and identify key policy issues.

3

We’ll move into a short review of We’ll move into a short review of macroeconomic history.macroeconomic history.

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What We’ll DiscoverWhat We’ll Discover

3 We’ll see that the problems facingWe’ll see that the problems facing

macroeconomists have becomemacroeconomists have become

progressively more complex over time:progressively more complex over time:

– unemployment and inflationunemployment and inflation

– stagflationstagflation

– stagnating incomestagnating income

– chronic budget and trade deficits.chronic budget and trade deficits.



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What We’ll DiscoverWhat We’ll Discover

3 We’ll also see that new macroeconomicWe’ll also see that new macroeconomic

theories have emerged in response to thistheories have emerged in response to this

increasing complexity at key turningincreasing complexity at key turning

points in the world’s economic history:points in the world’s economic history:

– Keynesianism in the 1930sKeynesianism in the 1930s

– Monetarism in the 1970sMonetarism in the 1970s

– Supply Side economics in the 1980sSupply Side economics in the 1980s

– and New Classical economics in the 1990s.and New Classical economics in the 1990s.



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Macroeconomics DefinedMacroeconomics Defined

3 The wordThe word macromacro means big or large, andmeans big or large, andmacroeconomics focuses on the bigmacroeconomics focuses on the big

economic picture -- specifically, how theeconomic picture -- specifically, how the

overall national economy performs.overall national economy performs.

3 Macroeconomics is distinguished fromMacroeconomics is distinguished from

microeconomicsmicroeconomics which deals with thewhich deals with the

behavior of individual markets and thebehavior of individual markets and the

businesses, consumers, investors, andbusinesses, consumers, investors, and

workers that make up the economy.workers that make up the economy.



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The “Big Four” Policy IssuesThe “Big Four” Policy Issues

3 InflationInflation

3 UnemploymentUnemployment

3 The Rate of Economic GrowthThe Rate of Economic Growth

3 Movements in the Business CycleMovements in the Business Cycle



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Macro Problem #1: InflationMacro Problem #1: Inflation

3 Defined as an upward movement of Defined as an upward movement of

prices from one year to the next.prices from one year to the next.

3

Measured by the percentage change inMeasured by the percentage change in

price indices such as the Consumer Priceprice indices such as the Consumer Price

Index, the Producer Price Index, or theIndex, the Producer Price Index, or the

so-called GDP deflator.so-called GDP deflator.



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Housing

32%

Transportation

19%

Food

17%

Health

6%

Insurance and pensions

9%

Education

1%Personal care

1%

Miscellaneous

5%

Entertainment

5%

Clothing

5%



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Consumer Price IndexConsumer Price IndexConsumer Price IndexConsumer Price Index

-12

-10

-8

-6

-4

-2

0

24

6

8

10

12

14

16

1930 1940 1950 1960 1970 1980 1990

Consumer Price Index

Inflation Averaged 3.4Inflation Averaged 3.4

percent a year. percent a year.

Source:U.S. Department of Labor Source:U.S. Department of Labor

14 percent in 194714 percent in 1947

Minus 10 percent inMinus 10 percent in

19321932



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Increase inIncrease in

our our

PaychecksPaychecks

Our purchasing power Our purchasing power

declinesdeclines

The Cruelest TaxThe Cruelest Tax

InflationInflation

(Prices of Goods)(Prices of Goods)

is greater is greater

thanthan



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Not Everyone LosesNot Everyone Loses

3 Inflation that is unanticipated can benefitInflation that is unanticipated can benefit

borrowers at the expense of lenders.borrowers at the expense of lenders.

3

How might this happen?How might this happen?



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How This WorksHow This Works

3 Suppose you borrow $1,000 from a bank Suppose you borrow $1,000 from a bank

and promise to repay it in two years.and promise to repay it in two years.

3

If, during that time, the price levelIf, during that time, the price level

doubles because of inflation, the $1,000doubles because of inflation, the $1,000

which you repay will have only half of which you repay will have only half of

the purchasing power of the $1,000the purchasing power of the $1,000

originally borrowed.originally borrowed.



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Macro Problem #2: UnemploymentMacro Problem #2: Unemployment

3 The unemployment rateThe unemployment rate is measured as theis measured as the

number of unemployed persons divided bynumber of unemployed persons divided by

the number of people in the labor force.the number of people in the labor force.



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Unemployment Rate Since 1900Unemployment Rate Since 1900

Percentageof

laborfo

rceunemploy

ed

Percent ag

eoflaborfo

rceune m

ployed

19301930 19901990

Year Year

19401940 19501950 19601960 19701970 19801980

3030

2020

1010



1920192019001900 19101910

Average

unemployment

Actual

unemployment

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Kinds of UnemploymentKinds of Unemployment

3 In talking about unemployment,In talking about unemployment,

economists distinguish between threeeconomists distinguish between three

kinds:kinds: frictionalfrictional,, cyclicalcyclical, and, and structural.structural.



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Frictional UnemploymentFrictional Unemployment

3 Frictional unemploymentFrictional unemployment is the least of is the least of the macroeconomist’s worries.the macroeconomist’s worries.

3 It occurs as a natural part of the job-It occurs as a natural part of the job-

seeking process as people quit their jobsseeking process as people quit their jobs just long enough to look for and find just long enough to look for and find

another one.another one.



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Cyclical UnemploymentCyclical Unemployment

3 Cyclical unemploymentCyclical unemployment is a much moreis a much moreserious problem.serious problem.

3 It occurs when the economy dips into aIt occurs when the economy dips into a

recession.recession.3 It is this type of unemployment thatIt is this type of unemployment that

macroeconomists have historically spentmacroeconomists have historically spent

most of their time trying to solve.most of their time trying to solve.



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Structural UnemploymentStructural Unemployment

3 Structural unemploymentStructural unemployment occursoccurswhen a change in technology makeswhen a change in technology makes

someone’s job or job skills obsolete.someone’s job or job skills obsolete.

– E.g., the auto worker replaced by aE.g., the auto worker replaced by arobot or the telephone informationrobot or the telephone information

operator replaced by a computerizedoperator replaced by a computerized

voice synthesizer.voice synthesizer.

3 Structural unemploymentStructural unemployment occursoccurswhen a change in technology makeswhen a change in technology makes

someone’s job or job skills obsolete.someone’s job or job skills obsolete.

– E.g., the auto worker replaced by aE.g., the auto worker replaced by arobot or the telephone informationrobot or the telephone information

operator replaced by a computerizedoperator replaced by a computerized

voice synthesizer.voice synthesizer.



M P bl #3

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Macro Problem #3:Macro Problem #3:

The Rate of Economic GrowthThe Rate of Economic Growth3 Measured by growth in the Gross DomesticMeasured by growth in the Gross Domestic

Product or “GDP.”Product or “GDP.”

3 GDP is defined as the market value of all theGDP is defined as the market value of all the

final final goods and services produced in agoods and services produced in a

country in a given year.country in a given year.

– Economists have two ways of measuring GDP,Economists have two ways of measuring GDP,

the “flow-of-cost” or “income” approach and thethe “flow-of-cost” or “income” approach and the“flow of product” or “expenditures” approach.“flow of product” or “expenditures” approach.



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Consumption expenditures by householdsConsumption expenditures by households

plus plus

Investment expenditures by businessesInvestment expenditures by businesses

plus plus

Government purchases of goods and servicesGovernment purchases of goods and services

plus plus

Net exports=total exports-total imports Net exports=total exports-total imports

=GDP=GDP

Flow of product, or expenditures,Flow of product, or expenditures,

approachapproach

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Consumption expenditures by householdsConsumption expenditures by households

plus plus

Investment expenditures by businessesInvestment expenditures by businesses

plus plus

Government purchases of goods and servicesGovernment purchases of goods and services

plus plus

Net exports Net exports

WagesWages

plus plus

RentsRents

plus plus

InterestInterest

plus plus

ProfitsProfits

Flow of cost, or income, approachFlow of cost, or income, approach

=GDP==GDP=

Flow of product, or expenditures,Flow of product, or expenditures,

approachapproach

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Actual vs. Potential GDPActual vs. Potential GDP3 Actual GDP Actual GDP represents what we are producing.represents what we are producing.

3 Potential GDP Potential GDP represents the maximum amountrepresents the maximum amount

the economy can produce without causingthe economy can produce without causing

inflation.inflation.

3 When actual GDP isWhen actual GDP is lessless than potential GDP,than potential GDP,we are in the recessionary range of thewe are in the recessionary range of the

economy.economy.

3 When actual GDP isWhen actual GDP is aboveabove potential GDP, wepotential GDP, we

run the strong risk of inflation.run the strong risk of inflation.

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Nominal vs. Real GDPNominal vs. Real GDP

3 Nominal GDP is measured in actual marketNominal GDP is measured in actual market

prices.prices.

3 Real GDP is nominal GDP adjusted forReal GDP is nominal GDP adjusted for

inflation.inflation.

3 Moreover, when we divide nominal GDPMoreover, when we divide nominal GDP

by real GDP, we obtain the GDP deflator-by real GDP, we obtain the GDP deflator-

another valuable inflation index.another valuable inflation index.

Click here for a numericalClick here for a numerical

example of the GDPexample of the GDP

deflator deflator



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Output GrowthOutput Growth

3 GDP is the best widely available measureof the level and growth of output in the

economy.

3 GDP is the best widely available measureof the level and growth of output in the

economy.

xcut

xcut

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U.S. Real GDP, 1929-1994U.S. Real GDP, 1929-1994

19301930 19901990

5,0005,000

Year RealGD

P(billionsof

dollars ,

1987prices)

Th

eGre

atDepression

TheGre

atDepression

Vietnam

War

Vietnam

War

Firstoilshock

Firstoilshock

TightM

oney

TightM

oney

Su

pply-s

idetax

Supply-s

idetax

Jobless

Recover

y

Jobless

Recover

y

World

WarII

World

WarII

Postwardemobi li

zation

Postwa

rdemobi li

zation



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3During those periods, real andDuring those periods, real and

nominal GDP were moving innominal GDP were moving in

opposite directions.opposite directions.

3 This point underscores why it is soThis point underscores why it is so

important to focus on real GDP asimportant to focus on real GDP as

the best measure of growth.the best measure of growth.

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Business CyclesBusiness Cycles

3 Closely related to the issue of economicClosely related to the issue of economic

growth and real GDP as a measure of growth and real GDP as a measure of

such growth is the problem of “businesssuch growth is the problem of “business

cycles.”cycles.”

3 The term business cycle refers to theThe term business cycle refers to the

recurrent ups and downs in real GDPrecurrent ups and downs in real GDP

over several years.over several years.



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TimeTime

Levelofbusin

essacti

vity

Levelo fb

usinessacti

vity

G r o w t h G r o w t h

T r e n d

T r e n d

T r o u g h

T r o u g h

T r o u g h T r o u g h

P e a k P e a k

P e a k P e a k

R e c e s s i o n

R e c e s s i o n

R e c e s s i o n

R e c e s s i o n

R e c o v e r y

R e c o v e r y

R e c o v e r y

R e c o v e r y



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Do Business Cycles ExistDo Business Cycles Exist

3 A central concern of macroeconomists is toA central concern of macroeconomists is to

determine whether a business cycle exists and, if so,determine whether a business cycle exists and, if so,

what are the forces behind it.what are the forces behind it.

3

More importantly, both macroeconomists and theMore importantly, both macroeconomists and thepolitical leaders they may serve want to know whatpolitical leaders they may serve want to know what

macroeconomic policies may be used to control ormacroeconomic policies may be used to control or

harness the business cycle.harness the business cycle.



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At The Same TimeAt The Same Time

3 A central concern of business is toA central concern of business is to

determine whether the economy is goingdetermine whether the economy is going

into a contraction or expansion--with ainto a contraction or expansion--with a

correct guess being the differencecorrect guess being the difference

between a big profit or a big loss.between a big profit or a big loss.



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Click here to continueClick here to continue

with the presentationwith the presentation

Lecturer: Peter NavarroLecturer: Peter Navarro

http://opt/scribd/conversion/tmp/scratch2/PPVIEW32.EXE%20gmalectonep2f.ppt






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End of Part 1End of Part 1

Multimedia Designer: Ron Kahr Multimedia Designer: Ron Kahr

Female Voice: Ashley West LeonardFemale Voice: Ashley West Leonard

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The GDP DeflatorThe GDP Deflator

A E lA E l

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An ExampleAn Example

3 Say a country produces 1000 bushels of corn inSay a country produces 1000 bushels of corn in

year 1 and 1010 bushels in year 2.year 1 and 1010 bushels in year 2.

– This means that corn production grew by oneThis means that corn production grew by one

percent between the two years.percent between the two years.

3

The price of a bushel is $1 in year 1 and $2 inThe price of a bushel is $1 in year 1 and $2 inyear 2.year 2.

– Prices grew by 100 percent.Prices grew by 100 percent.

3 What is the rate of growth in nominal GDP?What is the rate of growth in nominal GDP?

Page Down to AdvancePage Down to Advance

PresentationPresentation

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3 Nominal GDP is simply P times Q.Nominal GDP is simply P times Q.

– Year 1 GDP=$1*$1000=$1000Year 1 GDP=$1*$1000=$1000

– Year 2 GDP=$2*$1010=$2020Year 2 GDP=$2*$1010=$2020

– Thus, nominal GDP grew by 102%.Thus, nominal GDP grew by 102%.

3 Now, what is the rate of growth inNow, what is the rate of growth in real real

GDP?GDP?



8/14/2019 Lesson 1 - A - Copy




3 The inflation-adjusted real GDP isThe inflation-adjusted real GDP is

simply the second year’s output valued insimply the second year’s output valued in

the first or base year of $1.the first or base year of $1.

3 1010 bushels*$1=$10101010 bushels*$1=$1010

– This means that GDP grew by only 1This means that GDP grew by only 1

percent.percent.

3 What’s the GDP deflator for year 2?What’s the GDP deflator for year 2?



8/14/2019 Lesson 1 - A - Copy



3 The inflation-adjusted real GDP isThe inflation-adjusted real GDP is

simply the second year’s output valued insimply the second year’s output valued in

the first or base year of $1.the first or base year of $1.

3 1010 bushels*$1=$10101010 bushels*$1=$1010

– This means that GDP grew by only 1This means that GDP grew by only 1

percent.percent.

3 What’s the GDP deflator for year 2?What’s the GDP deflator for year 2? – $2020/$1010= 2$2020/$1010= 2

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lesson 1 - a - copy

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