NDP,NNP, GDP,and Inflation Rate

2-1-16

NDP,NNP, GDP,and Inflation Rate

Net Domestic Product(NDP)= GDP-Depreciation

Net National Product (NNP)= GNP-Depreciation

GNP= GDP+Net Foreign Factor Payment

Real GDP- the value of output produced in constant base year prices, adjusted for inflation (Price*Quantity) It can increase from year to year only if output increases.

Nominal GDP- the value of output produced in current year prices (Price*Quantity).It can increase from year to year if either price or quantity increases.

If we wanted to measure economic growth we use Real GDP. If we wanted to measure an increase in prices,known as inflation, we would use Nominal GDP.

GDP Deflator- Price Index used to adjust from nominal to real GDP, in the base year the GDP Deflator always equals 100 because they are the same value. For years after the base year GDP Deflator is greater than 100. Years before the base year GDP Deflator is less than 100.

Formula=(Nominal GDP/Real GDP) *100

Consumer Price Index(CPI)- most commonly used measurement of inflation, it measures the cost of a market basket of goods of a typical urban American family.

Formula=(Cost of a Market Basket of Goods in a Given Year/ Cost of a Market Basket of Goods in the Base Year)Times 100

Inflation Rate

Formula = ((Price Index in year 2 - Price of Index in year 1)/ Price Index in Year 1)Times 100

	Quantity in 2015	Quantity in 2016	Price in 2015	Price in 2016
Pizzas	5	6	$10	$15
Cds	4	5	$15	$20
Stereos	2	4	$600	$550
Automobiles	1	1	$10,000	$12,000

Ex.

$50+$60+$1,200+$10,000=$11,310 (Nominal GDP 2015)

$90+$100+$2,200+ $12,000= $14390(Nominal GDP 2016)

Quantity in 2016 *Price in 2015= $60+$75+$2,400+$10,000=$12,535(Real GDP 2016)

Real GDP In    2015=$11,310

2016= $12,535

Nominal GDP in 2015=$11,310

  2016= $14,390