# Concepts and Problems in Macroeconomics

Pages: 3 (851 words) Published: June 13, 2008
Concepts and Problems in Macroeconomics
Gross Domestic Product
The statistic used to measure the United States economy is called the Gross Domestic Product (GDP). The GDP is defined as the “total market value of final goods and services produced within an economy in a given year” (O'Sullivan, Sheffrin, & Perez, 2008, pg. 102). There is the measurement of the nominal GDP, which is the value of the GDP in current dollars, and there is the real GDB, “which is a measure of GDP that controls for changes in prices” (O'Sullivan et al.). The Bureau of Economic Analysis (BEA), generally uses the real GDP when reporting the annual GDP for comparison because it is more accurate. The BEA makes three essential distinctions as they calculate the real GDP:

There are three important ways in which the real GDP affects the United State’s economy. The most significant is that it is used to verify the pace at which the U.S. economy is growing. Is it growing faster, slower, or is it remaining the same as the previous quarter. The GDP is also used to compare the size of other economies throughout the world. It is also used to compare the relative growth of other economies in the world. Investors may use the GDP growth report when making decisions on how to allocate their assets and where there are good business opportunities. The Federal Reserve also uses the GDP growth rate to see if restraint or stimulation is needed for the economy (Amadeo, 2007). Calculation GDP Values for 2004 & 2005 Using a simple Economy

Using the information from the chart below, we can find some calculations and percentages for the GDP’s of 2005 and 2005:
QuantityPrices
YearCD’sTennis RacquetsCD’sRacquets
2004110200\$18\$90
2005120210\$20\$95

Nominal GDP for 2004-
(110 x 18) + (200 x 90) = 1,980 + 18,000 = 19,980
Nominal GDP for 2005
(120 x 20) + (210 x 95) = 2,400 + 19,950 = 22,350
Real GDP for 2004 (same as nominal) using 2004 prices
(110 x 18) + (200 x 90) + 1,980 + 18,000...