IBA- ECONOMICS
Lecture 1 week 4
GDP = the market value of all final goods and services produced within a country in a given
period of time set against the market price.q
GDP excludes most items that are produced and consumed at home and that never enter the
marketplace. It excludes items produced and sold illicitly, such as illegal drugs.
GDP per capita measures the national income per head of the population. Every transaction has
a buyer and a seller. Every dollar a buyer spends must be the income of a seller.
GDP (Y) = C + I + G + NX
Consumption (C) = the spending by households on goods and services, with exception of
purchasing of new housing.
Investment (I) = the spending on capital equipment, inventories, and structures, including new
housing.
Government purchases (G) = the spending on goods and services by local and central
governments. Does not include transfer payments because they are not made in exchange for
currently produced goods or services.
Net exports (NX) = exports minus imports.
GDP per capita = GDP divided by population of a country to measure of national income per
head.
Nominal GDP = values the production of goods and services at current prices.
Real GDP (intrinsieke waarde) = values the production of goods and services at constant
prices.
GDP is the best single measure of the economic well-being of a society. GDP per person tells
us the mean income and expenditure of the people in the economy. Higher GDP per person
indicates a higher standard of living.
n o mi n a l G D P
G D P d e f la t o r= x 100
r e al GD P
Converting nominal GDP to real GDP = R ea l G D P = N omi n a l G D P 20 x x x 100
20 X X
G D P d e f l at or 20 x x
HDI = also looks at other indicators, such as value of leisure, clean environment etc.
See homework for good calculations.
, Inflation = a situation in which the economy’s overall price level is rising.
Inflation rate = the percentage change in the price level from the previous period.
Consumer Price Index (CPI) = a measure of the overall costs of the goods and services bought
by a typical customer. When the CPI rises a typical family must spend more money to remain
the same living standards. There are 5 stages to calculating CPI:
1. Determine what prices are most important to the typical customer.
2. Find the prices of each of the goods and services in the basket for each point in time.
3. Use the data on prices to calculate the cost of the goods and services at different times.
4. Choose a base year, at which other years are compared.
5. Compute the inflation rate.
C P I ye a r 2−C P I y ear 1
I n f l a t i on r a t e y e ar 2= x 100
C PI y e ar 1
There are three key issues that causes the CPI to overstate the true costs of living:
1. 1. tion bias. The basket does not change to reflect consumer reaction to changes in
relative prices. Apples higher price, people buy more pears.
2. Introduction of new goods. The basket does not reflect the change in purchasing power
brought on by the introduction of new goods. New goods often have more variability
which makes each euro more valuable. Netflix > cinemas.
3. Unmeasured quality changes. If the quality of a good rises/falls from one year to the
next, the value of a euro rises/falls, even if the price of the good stays the same.
Smartphone > digital camera.
GDP deflator vs CPI:
- GDP deflator reflects the prices of all goods and services produced domestically,
whereas CPI reflects the prices of all goods and services bought by consumers.
- CPI compares the price of a fixed basket of goods and services to the price of the basket
in the base year, whereas GDP deflator compares the price of currently produced goods
and services to the price of the same goods and services in the base year.
Interest represents a payment in the future for a transfer of money in the past. The nominal
interest rate is the interest rate usually reported and not corrected for inflation.
The real interest rate = the nominal interest rate that is corrected for the effects of inflation.
Lecture 2 week 6
Different market structures
Different types of market structures. They differ according to:
- Number of firms.
- Types of goods sold.
- How easy it is to access the market.
Perfect Competition market: (some markets for foodstuffs)
- Many suppliers.
- Homogenous products.
- Easy to enter the market.
- Positive about perfect competition: high profits lead to more sellers entering market =
lower prices.
Lecture 1 week 4
GDP = the market value of all final goods and services produced within a country in a given
period of time set against the market price.q
GDP excludes most items that are produced and consumed at home and that never enter the
marketplace. It excludes items produced and sold illicitly, such as illegal drugs.
GDP per capita measures the national income per head of the population. Every transaction has
a buyer and a seller. Every dollar a buyer spends must be the income of a seller.
GDP (Y) = C + I + G + NX
Consumption (C) = the spending by households on goods and services, with exception of
purchasing of new housing.
Investment (I) = the spending on capital equipment, inventories, and structures, including new
housing.
Government purchases (G) = the spending on goods and services by local and central
governments. Does not include transfer payments because they are not made in exchange for
currently produced goods or services.
Net exports (NX) = exports minus imports.
GDP per capita = GDP divided by population of a country to measure of national income per
head.
Nominal GDP = values the production of goods and services at current prices.
Real GDP (intrinsieke waarde) = values the production of goods and services at constant
prices.
GDP is the best single measure of the economic well-being of a society. GDP per person tells
us the mean income and expenditure of the people in the economy. Higher GDP per person
indicates a higher standard of living.
n o mi n a l G D P
G D P d e f la t o r= x 100
r e al GD P
Converting nominal GDP to real GDP = R ea l G D P = N omi n a l G D P 20 x x x 100
20 X X
G D P d e f l at or 20 x x
HDI = also looks at other indicators, such as value of leisure, clean environment etc.
See homework for good calculations.
, Inflation = a situation in which the economy’s overall price level is rising.
Inflation rate = the percentage change in the price level from the previous period.
Consumer Price Index (CPI) = a measure of the overall costs of the goods and services bought
by a typical customer. When the CPI rises a typical family must spend more money to remain
the same living standards. There are 5 stages to calculating CPI:
1. Determine what prices are most important to the typical customer.
2. Find the prices of each of the goods and services in the basket for each point in time.
3. Use the data on prices to calculate the cost of the goods and services at different times.
4. Choose a base year, at which other years are compared.
5. Compute the inflation rate.
C P I ye a r 2−C P I y ear 1
I n f l a t i on r a t e y e ar 2= x 100
C PI y e ar 1
There are three key issues that causes the CPI to overstate the true costs of living:
1. 1. tion bias. The basket does not change to reflect consumer reaction to changes in
relative prices. Apples higher price, people buy more pears.
2. Introduction of new goods. The basket does not reflect the change in purchasing power
brought on by the introduction of new goods. New goods often have more variability
which makes each euro more valuable. Netflix > cinemas.
3. Unmeasured quality changes. If the quality of a good rises/falls from one year to the
next, the value of a euro rises/falls, even if the price of the good stays the same.
Smartphone > digital camera.
GDP deflator vs CPI:
- GDP deflator reflects the prices of all goods and services produced domestically,
whereas CPI reflects the prices of all goods and services bought by consumers.
- CPI compares the price of a fixed basket of goods and services to the price of the basket
in the base year, whereas GDP deflator compares the price of currently produced goods
and services to the price of the same goods and services in the base year.
Interest represents a payment in the future for a transfer of money in the past. The nominal
interest rate is the interest rate usually reported and not corrected for inflation.
The real interest rate = the nominal interest rate that is corrected for the effects of inflation.
Lecture 2 week 6
Different market structures
Different types of market structures. They differ according to:
- Number of firms.
- Types of goods sold.
- How easy it is to access the market.
Perfect Competition market: (some markets for foodstuffs)
- Many suppliers.
- Homogenous products.
- Easy to enter the market.
- Positive about perfect competition: high profits lead to more sellers entering market =
lower prices.
