Macroeconomics: The Big Picture
Read this chapter and attempt the "Try It" exercises. Also, complete the concept problems and the numerical problems at the end of the chapter. In the first section of this chapter, you will read about the definition of Gross Domestic Product and some of the issues around measuring it. You will also learn about the 4 phases of the business cycle. As you will see, the economy goes through naturally alternating periods of economic growth and recession. You will review certain sections of this chapter later in the unit.
2. Price-Level Changes
ANSWER TO TRY IT! PROBLEM
Rearranging Equation 5.3, real GDP = nominal GDP/implicit price deflator. Therefore,
Real GDP in 2004 = $11 trillion/1.091 = $10.1 trillion.
Thus, in this economy in real terms, GDP has grown by $0.7 trillion.
To find the rate of inflation, we refer to Equation 5.4, and we calculate:
Thus, the price level rose 2.6% between 2003 and 2004.