MGT411 GDB # 1 Solution

Gross Domestic Product:


In economics, GDP uses for gross domestic product-the total value of all goods and services produced within that economy during a specified period.

The GDP deflator is a price index compute changes in prices of all new, nationally and internally produced, final goods and services in an economy.

The GDP deflator is not based on a fixed market basket of goods and services. The basket is allowed to change with people's consumption and investment patterns. Therefore, new expenditure patterns are allowed to show up in the deflator as people respond to changing prices.

Consumer price Index:

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living.

Which is better Measure::

Although at first glance it may seem that CPI and GDP Deflator measure the same thing, there are a few key differences:

a) The first is that GDP Deflator includes only domestic goods and not anything that is imported. This is different because the CPI includes anything bought by consumers including foreign goods.

b) The second difference is that the GDP Deflator is a measure of the prices of all goods and services while the CPI is a measure of only goods bought by consumers.
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Consumer price index (CPI)

1) Measure of the overall level of price used to.(2)Track change in the typical household's cost of living.(3)Survey consumers to determine comosition of the typical consumer;s "basket" of good.(4)Every month,collect data on price of all item in the basket;compute cost of basket.(5)CPI in any month equals

100 * COST OF BASKET IN THAT MONTH / COST OF BASKET IN BASE PERIOD
GDB DEFLATOR:The GDB deflator,also called the implicit price for GDB,measures the price of output relative to its price in the base year.

GDB=(NOMINAL GDB / REAL GDB)*100