Macroeconomics

Table of Contents

1. Topic pack - Macroeconomics - introduction
2. 2.1 The level of overall economic activity (notes)
   1. Overall economic activity - introduction
   2. The circular flow of income model (1)
   3. Circular flow - two sector closed
   4. Circular flow - two sector open
   5. Circular flow - three sector open
   6. Circular flow - government
   7. The circular flow of income model (2)
   8. Circular flow - a summary
   9. Some mathematics
   10. Measures of economic activity
   11. Examining the three methods of calculating national income
   12. What is GDP? (video)
   13. Different national income measures
   14. Real v money data
   15. Current and constant prices
   16. Using index numbers
   17. Total and per capita
   18. Case study - rapid economic growth
   19. Using national income data
   20. Purchasing power of GDP
   21. Alternative measures of GDP
   22. Case Study
   23. Short term fluctuations and long term trends
   24. The business cycle in history
3. 2.1 The level of overall economic activity (questions)
4. Section 2.2 Aggregate demand and supply (notes)
5. Section 2.2 Aggregate demand and supply (simulations and activities)
6. 2.2 Aggregate Demand and Aggregate Supply (questions)
7. 2.3 Macroeconomic objectives (notes)
8. Low Unemployment
9. 2.3 Macroeconomic objectives (questions)
10. 2.4 Fiscal policy (notes)
11. 2.4 Fiscal policy (questions)
12. 2.5 Monetary policy (notes)
13. 2.5 Monetary Policy (questions)
14. Section 2.6 Supply-side policies (notes)
15. 2.6 Supply-side policies (questions)
16. Print View

Current and constant prices - HL ONLY

You need to be able to:

Calculate real GDP, using a price deflator.

The GDP deflator is a broad index of price increases than the consumer price index (CPI is the usual measure of inflation). It includes the prices of capital goods as well as consumer goods. It can be used to calculate real changes in the level of GDP. We say that it is used to convert GDP at current prices to GDP at constant prices (ie removes the fefect of inflation).

The following table show the GDP deflator indices for two countries, Italy and Turkey

The formula for the GDP deflator is as follows:

Hence to calculate Real GDP the formula can be rearranged as follows

Task

1. Calculate the increase in the overall level of price increases between 2000 and 2009 for both countries. This will give you a clue why nominal GDP has increased over the period.
2. The table below shows the GDP figure at current prices in US $.

3. For the above nominal GDP data calculate the real GDP and add it to a spreadsheet
4. Plot the GDP at current prices (nominal) and the GDP at constant prices (real) for both countries between 2000 and 2009. Time should be plotted along the X axis.
5. Are there any differences between the two graphs for each country?
6. What accounts for the difference between the two sets of data?