Alright. Let's discuss on a high level one of the more important calculations you're going to make in this class, it's about gross domestic product. Let's check it out. So gross domestic product, it measures this is the definition, the value of goods and services produced by a country in a specific year. So gross domestic product, it's the level of production in an economy, right? And we generally measure it year by year. So gross domestic product, you're going to see it all the time, the acronym GDP. Okay? And you're going to get really familiar with it throughout this class and we're going to go to a lot more detail in other videos about GDP. Okay? So, GDP is our gross domestic product. And when we talk about it in this class, we usually talk about two measures of GDP, the nominal GDP and real GDP. That's what we're going to discuss in this video. So, what we can say is that if GDP in the economy is greater in one year than the other, then we could say that the economy is expanding, okay? So that's a good thing for the economy, right? If the GDP is greater in year two than in year one, well, we're expanding. The other way around, if the GDP is decreasing, this is a signal that we're possibly in a recession, right? As we see production start to decrease in an economy. Cool? So let's start here with nominal GDP and then we'll talk about real GDP in the next video. So, nominal GDP, it's a measure of GDP using current year prices. So we are using the current year prices when we calculate nominal GDP, and we'll see why this is important when we compare it to real GDP. So let's do this example here. A carpenter builds 100 cabinets. The prices in 2017 are $1,000 per cabinet. In 2018, the price rises to $2,000 per cabinet. Okay? So let's imagine that this is the only thing in the economy. This is the only production that there is in the whole economy. It's a very simple carpenter town where this is all that happens, right? So if this is all of the production, well, GDP would be the production in this economy would be the 100 cabinets. So in 2017, we could calculate GDP as the 100 cabinets that got produced times the price of those cabinets, $1,000, GDP=100×1000=100000 and that would tell us that these cabinets are worth, $100,000 and that is the production in that economy in 2017. Right? So in 2017, GDP would be $100,000 because that is what that economy produced. So you can imagine in a more complicated situation like an actual economy like the United States, this is quite a hefty calculation. Everything that gets produced in the economy, how do we even get that kind of detail? Well, we'll get into that in another lesson, but for now, let's keep it pretty simple. Okay? So this is how we would calculate the GDP. We would find everything that was produced, the 100 cabinets and what were they worth? A $1,000. So check it out. In 2018, how is this calculation any different? Well, they still produced 100 cabinets, let's say. Right? In 2018, there's still 100 cabinets that get produced. So they produced 100 cabinets in 2017, 100 cabinets in 2018. Right? But now in 2018, the price is $2,000 per cabinet. So this leads GDP, nominal GDP, to be GDP=100×2000=200000 Now, did the economy really produce more? This is kind of a trick with nominal GDP since we're using the current year prices. It might seem like, hey, in 2018, there was so much more production. GDP doubled in 2018, the economy must be doing great, right? But is that really the true picture here? In 2017, they built 100 cabinets. In 2018, they built 100 cabinets. So really, did production really increase? Maybe just the dollar value of that production increased. So what we do is we use a measure called real GDP. Let's pause real quick and let's talk about real GDP in the next video.
Table of contents
- 1. Introduction to Macroeconomics1h 57m
- 2. Introductory Economic Models59m
- 3. Supply and Demand3h 43m
- Introduction to Supply and Demand10m
- The Basics of Demand7m
- Individual Demand and Market Demand6m
- Shifting Demand44m
- The Basics of Supply3m
- Individual Supply and Market Supply6m
- Shifting Supply28m
- Big Daddy Shift Summary8m
- Supply and Demand Together: Equilibrium, Shortage, and Surplus10m
- Supply and Demand Together: One-sided Shifts22m
- Supply and Demand Together: Both Shift34m
- Supply and Demand: Quantitative Analysis40m
- 4. Elasticity2h 26m
- Percentage Change and Price Elasticity of Demand19m
- Elasticity and the Midpoint Method20m
- Price Elasticity of Demand on a Graph11m
- Determinants of Price Elasticity of Demand6m
- Total Revenue Test13m
- Total Revenue Along a Linear Demand Curve14m
- Income Elasticity of Demand23m
- Cross-Price Elasticity of Demand11m
- Price Elasticity of Supply12m
- Price Elasticity of Supply on a Graph3m
- Elasticity Summary9m
- 5. Consumer and Producer Surplus; Price Ceilings and Price Floors3h 40m
- Consumer Surplus and WIllingness to Pay33m
- Producer Surplus and Willingness to Sell26m
- Economic Surplus and Efficiency18m
- Quantitative Analysis of Consumer and Producer Surplus at Equilibrium28m
- Price Ceilings, Price Floors, and Black Markets38m
- Quantitative Analysis of Price Ceilings and Floors: Finding Points20m
- Quantitative Analysis of Price Ceilings and Floors: Finding Areas54m
- 6. Introduction to Taxes1h 25m
- 7. Externalities1h 3m
- 8. The Types of Goods1h 13m
- 9. International Trade1h 16m
- 10. Introducing Economic Concepts49m
- Introducing Concepts - Business Cycle7m
- Introducing Concepts - Nominal GDP and Real GDP12m
- Introducing Concepts - Unemployment and Inflation3m
- Introducing Concepts - Economic Growth6m
- Introducing Concepts - Savings and Investment5m
- Introducing Concepts - Trade Deficit and Surplus6m
- Introducing Concepts - Monetary Policy and Fiscal Policy7m
- 11. Gross Domestic Product (GDP) and Consumer Price Index (CPI)1h 37m
- Calculating GDP11m
- Detailed Explanation of GDP Components9m
- Value Added Method for Measuring GDP1m
- Nominal GDP and Real GDP22m
- Shortcomings of GDP8m
- Calculating GDP Using the Income Approach10m
- Other Measures of Total Production and Total Income5m
- Consumer Price Index (CPI)13m
- Using CPI to Adjust for Inflation7m
- Problems with the Consumer Price Index (CPI)6m
- 12. Unemployment and Inflation1h 22m
- Labor Force and Unemployment9m
- Types of Unemployment12m
- Labor Unions and Collective Bargaining6m
- Unemployment: Minimum Wage Laws and Efficiency Wages7m
- Unemployment Trends7m
- Nominal Interest, Real Interest, and the Fisher Equation10m
- Nominal Income and Real Income12m
- Who is Affected by Inflation?5m
- Demand-Pull and Cost-Push Inflation6m
- Costs of Inflation: Shoe-leather Costs and Menu Costs4m
- 13. Productivity and Economic Growth1h 17m
- 14. The Financial System1h 37m
- 15. Income and Consumption52m
- 16. Deriving the Aggregate Expenditures Model1h 22m
- 17. Aggregate Demand and Aggregate Supply Analysis1h 18m
- 18. The Monetary System1h 1m
- The Functions of Money; The Kinds of Money8m
- Defining the Money Supply: M1 and M24m
- Required Reserves and the Deposit Multiplier8m
- Introduction to the Federal Reserve8m
- The Federal Reserve and the Money Supply11m
- History of the US Banking System9m
- The Financial Crisis of 2007-2009 (The Great Recession)10m
- 19. Monetary Policy1h 32m
- 20. Fiscal Policy1h 0m
- 21. Revisiting Inflation, Unemployment, and Policy46m
- 22. Balance of Payments30m
- 23. Exchange Rates1h 16m
- Exchange Rates: Introduction14m
- Exchange Rates: Nominal and Real13m
- Exchange Rates: Equilibrium6m
- Exchange Rates: Shifts in Supply and Demand11m
- Exchange Rates and Net Exports6m
- Exchange Rates: Fixed, Flexible, and Managed Float5m
- Exchange Rates: Purchasing Power Parity7m
- The Gold Standard4m
- The Bretton Woods System6m
- 24. Macroeconomic Schools of Thought40m
- 25. Dynamic AD/AS Model35m
- 26. Special Topics11m
10. Introducing Economic Concepts
Introducing Concepts - Nominal GDP and Real GDP
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