GDP

GDP is one of several fundamental concepts in macro economics that we have to understand.

I hope I can help you guys how to understand and calculate GDP in a short time.

Here you go:

GDP (Gross Domestic Product) indicates the value of all the goods and services produced within a country, regardless of one's nationality.
It's important to know the GDP of a country because this number indicates how well the economy in a country has grown.


So far, I know two types of GDP that we can measure.

1. Nominal GDP.
this kind of GDP is really easy to calculate. We just have to know the quantity of goods that produced within a given year multiply by how much the value of the goods.

eg: in 1993 Indonesia produced 10 cars @ $5000 and 10 bike @200
given from the data above, we can calculate the nominal GDP in 2008
10*$5,000 + 10*$200 = $52,000

2. Real GDP.
is a measure of econ output ajusted for general price level changed.
Real GDP reflects quantities of goods that produce in various years, prices that had existed in some given year.

I'd like to attach from what I got in my accounting class in order to make you guys have a crystal clear concept of real GDP.

First, we have to know the concept of future value, past value, and present value of money.
let's get straight to it.
$1 that we have now could be more or less in the future/past.
because there are such things such as deflation/inflation that can change the real value of money.

Measuring real GDP is just like calculate the present value of money that "should" be existed in the given year (base year)
Indeed, we have to pick a year as a parameter, and it's really up to you which year you'd like to choose. But of course you have to make a good consideration about it.

there are 3 elements that we have to know before we can really calculate real GDP
-base year*
-price index
-nominal GDP
*the price index of base year is always 1. It has to be 1 because this is the parameter (as I have already mentioned above)

there are different types of price index:
1. Consumer price index
measures changes in a typical market basket of goods purchased by urban wage earners.

2.Producer price index
measures price changes of industrial comodities.

3.GDP Price deflator (implicit price deflator)
measures the prices of all goods and services in GDP.

Finally, Let's do some number:

Year----------Price index-------------Nominal GDP
2001----------0.578-------------------30,500
2002----------0.745-------------------33,780
2003----------1.000-------------------40,300
2004----------1.053-------------------42.500
2005----------1.390-------------------41,300

Real GDP in 2005 = nominal GDP 2005/Price index 2005
= 41,300/1.390
= 29,712.2302 <---- this number shows us the real GDP based on year 2004, and it's really bad. :(


-All you need is cash-