Stages of Production Value of Value of Value

Finished Intermediate Added

Goods Goods
Farmer 1 0 1
Miller 3 1 2
Baker 6 3 3

Total Value Added 6 (GDP)

Activity Money paid to Butler Effect on GDP

Before Marriage Income of Butler Added to GDP

After marriage Transfer to Butler Not added to GDP

So, after marriage, GDP falls by the loss of salary of butler.

Effect on GDP

Added to GDP
Not added to GDP
a) Government purchase

b) Investment

c) Net export

d) Consumption

e) Inventory Investment
ent purchase

Investment
Some of the obsevations that can be made regarding the trends in the economy over the period from 1950 to 2000

a) Share of consumpton in GDP is about two-third throughout the entire period but the share fell by 2 poin
and then rose by 5 points from 1975 to 2000.

b) Similarly, share of investment in GDP fell by 4 points from 1950 to 1975 and then rebounded and rose by

c) Government consumption however increased by about 6 points from 1950 to 1975 and then fell by abou
in overall from 1950 to 1975, personal consumption and private investment fell by some margin but gov
during that period. The reverse is seen in the period from 1975 to 2000.

d) Net export increased slightly from 1950 to 1975 but from 1975 to 2000, fell by 4 points.

e)
 the period from 1950 to 2000 are as follows:

od but the share fell by 2 points from 1950 to 1975

d then rebounded and rose by about 4 points from 1975 to 2000.

0 to 1975 and then fell by about 4 points from 1975 to 2000. So,
nt fell by some margin but governemnt consumption increased

ll by 4 points.
 a) Base year = 2000

PA = Price of automobiles
QA = Quantity of automobiles
PB = Price of bread
QB = Quantity of breads

Nominal GDP

Nominal 2000 =
=
=

Nominal 2010 =
=
=

Real GDP:

Real 2000 =
=

b) CPI is the Laspeyres index and Implicit Price Defaltor Real 2010 =
is the Paasche index. So we see that according to the =
Laspeyres index, prices have risen by 60 percent while =
according to the Paasche index, prices have risen by
52 percent. Individually, price of automobiles rose by Implicit Price Deflator:
20 percent while price of breads rose by 100 percent.
Deflator 2000 =
CPI or Laspeyres index applies a fixed weight according =
to the quantity of the base year. Although quantity of bread
fell and price rose in 2010, but CPI applied the weight of the
base year in which quantity of breads consumed was Deflator 2010 =
higher. That is why CPI or Laspeyres index shows a higher =
price increase than what the Deflator of Paasche index =
shows.
Price Index:

CPI 2000 =

CPI 2010 =
=
=
=
Price of automobiles
Quantity of automobiles
Price of bread
Quantity of breads

(PA2000*QA2000+PB2000*QB2000)
(50000*100+10*500000)
10000000

(PA2010*QA2010+PB2010*QB2010)
(60000*120+20*400000)
15200000

Nominal 2000 (Because 2000 is the base year)

10000000

(PA2000*QA2010+PB2000*QB2010)
(50000*120+10*400000)
10000000

Nominal 2000 / Real 2000

1

Nominal 2010 / Real 2010

15200000 / 10000000
1.52

1 (Because 2000 is the base year)

(PA2010*QA2000+PB2010*QB2000) / (PA2000*QA2000+PB2000*QB2000)
(60000*100+20*500000) / (50000*100+10*500000)
16000000 / 10000000
1.6
PR = Price of red apples a) CPI_1 = 1
QR = Quantity of red apples
PG = Price of green apples CPI_2 = (PR2*QR1+PG2*QG1)/(PR1
QG = Quantity of green apples = (2*10+1*0)/(1*10+2*0)
= 2
Base year = Year 1
b) Nominal_1 = PR1*QR1+PG1*QG1
= 1*10+2*0
= 10

Nominal_2 = PR2*QR2+PG2*QG2
= 2*0+1*10
= 10

c) Real_1 = Nominal_1
= 10

Real_2 = PR1*QR2+PG1*QG2
= 1*0+2*10
= 20

d) Deflator_1 = 1

Deflator_2 = Nominal_2
= 10
= 0.5
 (Because Year 1 is the base year)

(PR2*QR1+PG2*QG1)/(PR1*QR1+PG1*QG1)
(2*10+1*0)/(1*10+2*0)

PR1*QR1+PG1*QG1

PR2*QR2+PG2*QG2

Nominal_1 (Because Year 1 is the base year)

PR1*QR2+PG1*QG2

(Since Year 1 is the base year)

Nominal_2 / Real_2
/ 20