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Macro 3

The document outlines key economic concepts including base year, price level, GDP, GNP, and the differences between nominal and real GDP. It also defines economic growth, recession, and depression, providing mathematical examples for calculating nominal and real GDP. The base year for Bangladesh is identified as the 2015-2016 fiscal year.

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Mahin
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7 views3 pages

Macro 3

The document outlines key economic concepts including base year, price level, GDP, GNP, and the differences between nominal and real GDP. It also defines economic growth, recession, and depression, providing mathematical examples for calculating nominal and real GDP. The base year for Bangladesh is identified as the 2015-2016 fiscal year.

Uploaded by

Mahin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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1.

Base year: The year chosen as a point of reference or basis of comparison for prices in other
years; a benchmark year.
Base year of Bangladesh: 2015-2016 fiscal year.

2. Price level: A weighted average of the prices of all goods and services.

3. GDP: The total market value of all final goods and services produced annually within a
country’s borders.

4. GDP measurement approaches.

5. Types of GDP: 2 types of GDP


a) Nominal GDP: When GDP is considered at current year price, then it is called as nominal
GDP.
b) Real GDP: When GDP is considered in base year price, then it is called as real GDP.

6. What are the differences between nominal GDP and real GDP?

Nominal GDP Real GDP


1. When GDP is considered at current year 1. When GDP is considered at base year price,
price, then it is called as nominal GDP. then it is called as real GDP.

2. It is also referred to as the current dollar 2. It is also referred to as the constant dollar
GDP. GDP.

3. It is not an inflation-adjusted measure that 3. It is an inflation-adjusted measure that


reflects the value of all goods and services reflects the value of all goods and services
produced by an economy in a given year. produced by an economy in a given year.

7. GNP (Gross National Product): The total market value of all final goods and services
produced annually by the domestic factors of production.

8. What are the differences between GDP and GNP?

GDP GNP
1. The total market value of all final goods and 1. The total market value of all final goods and
services produced annually within a country’s services produced annually by the domestic
borders. factors of production.

2. Value of national output produced in a 2. GNP = GDP + net income from abroad
country.

3. Includes income of foreigners in the home


country. e.g. multinational companies income. 3. Excludes income of foreigners in the home
country. e.g. profit of multinational companies
send back to their countries.

9. Growth or economic growth or real GDP growth: Economic growth can be defined as the
increase in the inflation-adjusted market value of the goods and services produced by
an economy over time. It is conventionally measured as the percent rate of increase in real gross
domestic product, or real GDP.

10. Related mathematical problem:


Question:
Fiscal QX PX (per unit price of X QY PY (per unit price of Y
Year (quantity product) (tk) (quantity product) (tk)
of X) of Y)
(units) (units)
2016-17 120 10 100 15
2017-18 150 20 110 25
2018-19 200 30 240 50

Now calculate: i) nominal GDP,


ii) real GDP (base year 2016-2017) and
iii) economic growth for the relevant years.

Answer:
i) Nominal GDP for 2016-17 = (120 × 10) + (100 × 15) = 2,700/=
Nominal GDP for 2017-18 = (150 × 20) + (110 × 25) = 5,750/=
Nominal GDP for 2018-19 = (200 × 30) + (240 × 50) = 18,000/=

ii) Real GDP for 2016-17 = (120 × 10) + (100 × 15) = 2,700/=
Real GDP for 2017-18 = (150 × 10) + (110 × 15) = 3,150/=
Real GDP for 2018-19 = (200 × 10) + (240 × 15) = 5,600/=

3,150/= - 2,700/=
iii) Economic growth for 2017-18 = × 100 = 16.67 %
2,700/=
5,600/= - 3,150/=
iii) Economic growth for 2018-19 = × 100 = 77.78 %
3,150/=

11. Recession: In economics, a recession is a business cycle contraction when there is a general
decline in economic activity. Recessions generally occur when there is a widespread drop in
spending (an adverse demand shock). This may be triggered by various events, such as
a financial crisis, an external trade shock, an adverse supply shock, the bursting of an economic
bubble, or a large-scale natural or anthropogenic disaster (e.g. a pandemic). In the United States,
it is defined as "a significant decline in economic activity spread across the market, lasting more
than a few months, normally visible in real GDP, real income, employment, industrial
production, and wholesale-retail sales". In the United Kingdom, it is defined as a negative
economic growth for two consecutive quarters.

12. Depression: A depression is a severe and prolonged downturn in economic activity.


In economics, a depression is commonly defined as an extreme recession that lasts three or more
years or which leads to a decline in real gross domestic product (GDP) of at least 10 percent in a
given year. Depressions are relatively less frequent than milder recessions, and tend to be
accompanied by high unemployment and low inflation.

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