Economics Variables : Economic Outlook

-Nominal GDP is the value of final goods and services evaluated at current-year prices and are calculated by summing the current values of final goods and services. In the other hand, the real GDP is and services in the base year to calculate the value of goods and services in all other years. “Real GDP holds prices constant, which makes it a better measure than nominal GDP of changes in the production of goods and services from one year to the next. In fact, growth in the economy is almost always measured

Identify economic factors that affect the real GDP, the unemployment rate, the inflation rate, and a key interest rate. How do you predict the economy will perform in the next two years given the current state of two of the economic factors you identified? How might your organization be affected by these changes?

Nominal GDP is GDP (goods and services produced, and their prices) calculated at current prices. Real GDP is GDP calculated at constant prices(goods ands and services produced). We use Real GDP because it reflects changes in production vice changes in prices. The GDP Deflator allows calculating only the prices of goods and services.

It widely recognized that the monetary policy within a country should be primarily concerned with the pursuit of price stability. However, it is still not clear how this objective can be achieved most effectively. This debate remains unsettled, but an increasing number of countries have adopted inflation targeting as their monetary policy framework. (Dr E J van der Merwe, 2002) This topic of Inflation targeting is a subject which immediately conjures different perceptions from different people. Many feel that low inflation should be a main aim of monetary policy, while others (such as trade union activists) believe that a higher growth rate to stimulate jobs should be the main concern.

There isn’t a pattern in the last 10 years for inflation changing. Inflation currently for October is 2.0, in October of last year it was 1.6 so it raised quite a bit in the last year. But in October 2007 inflation was 3.5,

The CPI is the most widely used measure of inflation and is sometimes viewed as an indicator of the effectiveness of government economic policy. It provides information about price changes in the Nation's economy to government, business, labor, and private citizens and is used by them as a guide to making economic decisions. In addition, the President, Congress, and the Federal Reserve Board use trends in the CPI to aid in formulating fiscal and monetary policies.

1. Using the year 2007 as the base year, compute the following statistics for each year: nominal GDP, real GDP, the GDP deflator (a Paasche price index) and the CPI (a Laspeyres price index). For the CPI,

But because “GDP is collected at current, or nominal, prices, one cannot compare two periods without making adjustments for inflation. To determine "real" GDP, its nominal value must be adjusted to take into account price changes to allow us to see whether the value of output has gone up because more is being produced or simply because prices have increased.” (Callen, T. 2008). A statistical tool called the price deflator is used to adjust GDP from nominal to constant prices. Nominal GDP is reported without the inflation adjusted to make it appear than its original value. Nominal GDP can be higher or lower than the conventional

The targeting of Inflation makes use of the available information, not only the monetary aggregates, and that would increase the accountability of central banks. That is going to reduce their independence but not at the expense of the higher inflation because the inflation targeting, in a sense, is a substitute for

Real Gross Domestic Product is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year. Real Gross Domestic Product accounts for changes in price level and provides a more accurate figure of economic growth. The government uses Gross Domestic Product as a tool to analyze the economy’s purchasing power and growth over time. This is done by looking at the economic output of two periods and valuing each period with the same average prices and comparing the two together ("Real Gross Domestic Product (GDP) | Investopedia”).

CPI is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. The basket of goods is a price survey that is taken from 10,000 households across the UK. The households are asked to record what they buy for two weeks and from this the 699 most occurring goods from all households are price checked from varying places across the UK and then are placed into the basket of goods. The goods are weighted according to their importance i.e. petrol would be more important than CDs and would therefore be more

Real GDP is essentially a measure of a nation's total economic output in which case adjustments are made to reflect changes in the price levels of goods and services. In that regard, real GDP (unlike nominal GDP) is the nation's total economic output expressed as per the prices of a specified year commonly referred to as the base year. To get a clearer picture of what real GDP actually is, we need to differentiate it from nominal GDP. In the words of Baumol and Blinder (2011), "nominal GDP is calculated by valuing all outputs at current prices." It does not therefore take into consideration price changes. A certain year's real GDP should therefore be lower than the same year's nominal GDP. This is largely the case given that the latter measure is not adjusted for inflation.

Real GDP can be calculated with the use of prices derived from a given base year, and this helps in the adjustment to changes in price. Through this perspective, it becomes possible for the real GDP to measure accurately changes relating to output

Inflation targeting has numerous advantages as a strategy for monetary policy. Unlike an exchange rate peg, inflation targeting enables monetary policy to focus primarily on domestic considerations and to respond accordingly to the domestic economy. (Mishkin F, 2000). Inflation targeting has the advantage that a stable relationship between money and inflation is not critical to its success. The strategy does not depend on this relationship, but rather uses all available information to determine the most appropriate settings of the inflation rate for the monetary policy. (Mishkin F, 2000) Inflation targeting also has the key advantage that it is easily understood by the public and is thus highly transparent. As an explicit target for inflation is created,

The Reserve Bank uses monetary policy in order to maintain price stability. Price Stability is keeping inflation levels low, mainly between 1% and 3% on average over the medium term, and also focusing on keeping future inflation near a 2% target midpoint. This is stated in an agreement called the Policy Target Agreement (PTA).