Macroeconomics
Macroeconomics
5th Edition
ISBN: 9781319098759
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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Chapter 7, Problem 13P
To determine

Concept Introduction:

Gross Domestic Product (GDP): It refers to the gross money value or gross market value of all the finished goods and the services produced by the normal resident and the non-residents within the borders of the country in an accounting year.

The formula to calculate the value of GDP is,

    Macroeconomics, Chapter 7, Problem 13P , additional homework tip  1

Here,

  • C is consumption spending.
  • I is investment spending.
  • G is government purchases.
  • X is export.
  • M is import.

GDP Deflator: It is one of the tools that help in measurement of price level of the gross domestic product with the help of real and nominal GDP.

The formula to calculate GDP Deflator is,

    Macroeconomics, Chapter 7, Problem 13P , additional homework tip  2

Consumer Price Index (CPI): It is one of the price indexes that measure the price of basket of goods which are bought by consumers.

Inflation: When the aggregate price level in an economy accelerates continuously for a span of time then it is referred to be inflation.

The formula to calculate inflation is,

    Macroeconomics, Chapter 7, Problem 13P , additional homework tip  3

Here,

  • CPI is consumer price index.
  • n is the present year.
  • Macroeconomics, Chapter 7, Problem 13P , additional homework tip  4is the previous year.

Alternate formula to calculate inflation is,

    Macroeconomics, Chapter 7, Problem 13P , additional homework tip  5

Here,

  • n is the present year.
  • Macroeconomics, Chapter 7, Problem 13P , additional homework tip  6is the previous year.

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