93072015 Google ON Gooale Search ‘AmasWEB is Economics: Encycloromic WEB'pedia Wednesday A AmosWEB Encyclonomic September 30, 2015 “Gg WEB:-pedia XX noni Seach ‘AmosWEB means Economics with a Touch of Whimsy! db Hover to expand Gets Today's Index Help us compile the AmosWes Free Lunch Index, Tell us about your last lunen Skipped lunch altogether. Bought by another. [Ate lunch at home. Brought lunch From home. Fast food drive through, Fast food dine in, Al-you-can eat buffet. ‘Casual dining with tp. Faney upscale with tip. Sulit More About the Index ute Favorite Balawin? Alec. Billy, Danie Stephen. ‘cam, ‘Submit oa ABCDEFGHIIKLMNOPORSTUVWXYZ# State of te Economy : Bulleing Permits GDP PRICE DEFLATOR: tina Pen A price index calculated as the ratio nominal grass domestic 3,118,000 product to real grass domeste product. Also commonly Down 16.3% from June Feferred to as the implicit price deflator, the GDP price 2015 Source: Econ Stats three months along with the gross domestic product, national Mote Shale inate Ti?) ‘The GOP price deflator is actually something of a bi-product in the Today, you are likely to estimation of GDP in both nominal and real terms. Nominal GOP spend @ greet eal of time ‘measures currant production at current prices. Real GDP, in contrast, browsing about 2 thrift ‘measures current production at constant prices (those existing In @ base store seeking to buy either perio, such as 2000), Because tre ONLY difference between nominal and “a bookehelt thet wil Ht in Feal GDP is the prices used to estimate the market value of production, 2 Your closet ora birtheay, comparison between nominal and real GDP Implictly reveals the change“ ereeting eard for your In prices from the base period to the current period Grandfather, Be on the Tookout for cardboard ‘The Historical Trend boxes. ‘Your Complete Scone ‘The trend in the GDP price GDP Price Deftator deflator is pictorially ‘This isnt met What am 12 resented In this chart, 100 Bre ea meester” fo eran: exhibited a relatively, Rosemary, long associated Steady upwardtend, 36° with remembrance, os fising from aminisute 15 § worn ae wreath by ina? to almost 10m stulens in andent Greece 2003, The base period for & during exams. the GOP price deflator is * the years 2000, which Is equal to 100. One section gay" agup "ann uses” aS of thi trend worth noting Gentes) AD: The abbreviation for ‘aggregate demand, which is the twtal (or aggregate) real ‘expenditures on final goods and services produced in the domestic economy that buyers \woule willing and able to make 2t different price levels, during 2 given time period (usually a year). Aggregate demand (AD) Is one half of tne aggregate market analysis; te other half is aggregate supply. Aggregate demand, relates the economy's price level, measured by the GOP price deflator, and ‘aggregate expenditures on domestic praduction, measured by real gross domestic product. ‘The aggregate expenditures are consumption, Investment, ‘government purchases, and net ‘exports made by tre four macroeconomic sectors (household, business, hitpikwaw amaswsb,comieg-infawe nav p?s=wpd8c=dsp8 + From 1974 to 1981, the GDP price deflator experienced a steep rise. This was a period of high inflation rates associated, atleast in part, with tremendous increases in petroleum prices. While modest Inflation tends to be a natural part of the U.S. economy, the high inflation experienced during the 1970s exceedingly rare, Common Uses ‘The GOP price deflator has two common uses: (1) as an Indicator of the pice level and economic activity and (2) as @ method of deflating ‘nominal economic incicators to real terms. + Price Level Indicator: The most common use of the GOP price deflator Is as an indicator of the economy's price level, and perhaps feven more importantly, as a means of estimating the rate of Inflation, The CPi-based inflation rate may be more widely reported by the media, but tre GDP price deflator Is usualy the measure of ‘choice when Sconamisis need precision in the analysis of inflation and related macroeconamic phenomena. While the GDP price deflator is not reportedly 2s frequently as the Cl (quarterly versus ‘monthiy), it does provide a more comprehensive measure of the price level and thus inflation, This is why the aga-eaate market Bnalysis Uses the GOP price deflator to measure the price level + Deflating Nominal to Real: Economists, business leaders, and ‘government policy makers often find it useful to convert current, ot FRominal economic incieators to real terms, that Is fo ellminate any 3DP ricer deflator 79302015 ‘government, and foreign), visit hitpikwaw amaswsb,comieg-infawe nav p?s=wpd8c=dsp8 1 x ‘AmasWEB is Economics: Encycloromic WEB'pedia Inflationary increases of the nominal values. In fact, the "ce‘lator” part of the GDP price deflator comes about because it is used to ‘eflate nominal GOP to real GDP, Deriving the Deflator ‘The GOP price deflator is made possible because the BEA measures GDP Jn both nominal dollars and real dollars. Nominal GOP measures current production at current prices and real GDP measures current production at Constant prices, prices existing during @ base period. Nominal 2002 GDP, for example, is the value of 2002 production at current 2002 prices. In contrast, real 2002 GDP is the value of 2002 production at constant 2000 prices, Comparing nominal GOP and real GOP indicates how current Drices, that is, the economy's price level, have changed since the base period. Estimating nominal and real GDP are quite involved, to say the least. However, once real and nominal GDP have been meticulously estimated, the Cerivation of the GDP price deflator is relatively straightforward. This equation indicates how simple itis, divide nominal GDP by real GOP, then multiply by 100: nominal GOP GDP price deflator = x 100 real GOP For example, nominal GOP in 2002 was $10,480.8 billion and real GDP in 2002 (using 2000 prices) was $10,083.0 billion, The ratio of nominal to real (after multistying by 100) s 103.95. sous Menulog” COP price detator = = 109 = 103.95 i 08 OMLNE $10,083.0 NOs itchia ‘The interpretation ofthis 103,95 value for GDP price deflator in 2002 is that the average price level in the economy increased by 3.95 percent, eet from 2000 (he base period for estimating real GOs) to 2002, Calculating the percentage change the GDP price deflator from one year tothe next | thea provides an excellent measure ofthe inflation rete, For example, the ‘SOP price deftatr Is 102 38 for 2001 ané 103.95 for 2002, 9 change ot 154 percent. “Tbeleve that every right implies» responsibiity, A Family of Measures very oppertinty an Dbligation, every ‘The GOP price deflator is actualy one of several price indexes associated possassion, a dety.” withthe Netianal Income and Product Accounts, These Indexes fal into fone of twa categories, (1) implicit deflators derives from corresponding -- John 0, Rockefeller, ‘nominal and real values and (2) chain-type price indexes used to industrialist estimate real values. + Implicit Deflators: Inthe same way that the GOP price deflator is pod derived as the ratio of nominal GOP and real GDP, a national APC. Income price deflator (NI price deflator) can be derived as the ratio Average Propensity to ‘of nominal NI and real NI. Similar price deflators can be derived Consume ‘or virtually every other measure in the National Income and Product Accounts, Including net domestic product, personal income, rie ‘aross national income, personal consumer expenditures, aross rivals dornestic investment, to name just @ few. However, other A PEDsstrian's Guide fan afew of te comprehensive measures, ike GDP ané GNP, Xia Cit price deflators for other measures are not regularly reported by the BEA, But they are very easy to calculate, Xero Accounting. Software + ChaioType Price indexes: The second set of price Indexes, which |ero\In and are regularly reported by the BEA, are chain-type price ncexes.” grow your ‘These indexes are used to derive Feal measures of GDP, national | Busingss. 30 income, consumption expenstures, ete For the most par, chain- [Day Free Trial type price indexes and implicit price deflators have nearly equel” | Start today. Values for 2 glven measure, For example, the 2002 chain-ype price ° Index for GOP was 103.95, compared to a GDP price deflator value of 103.95, rs Pros and Cons ‘Tell us what you think about Amos WEB, Uke what you ‘There are three important points to note about the GOP price deflator, sea? Have suggestions for ‘wo pro and one can, These points are especially important when improvements? Let us comparing the GOP price deflator to the CPt know. Click the User Ezedback lnk «Fist the GOP pie deflator is based on AL proucson in the Soregate ecorory. ne isa dene positives fu us urban User Feadback care rae alos te G1, bose nuesovaneexpenes tr ‘data gooes, purctses bythe paveutone asa, and even Seprt te fasa seth eho all So for ayer aly Xe irbestd ne es hues tr the oppregateeoorey te + Second, the GDP price deflator measures the prices of “current Production", the prices of gooes actually produced during the Current year. This also a cefiite pro. The CPI, in contrast is based 3DP ricer deflator 29302015 ‘AmasWEB is Economics: Encycloromic WEB'pedia fon a market basket of goods identified § or 10 years earlier. Again, from a macroeconomic perspective, this is much better way to 90. + Third, the GOP price deflator Is reported quarterly, every three ‘months, along with other measures in the National Income and Product Accounts, The GOP price deflator forthe first three months of the year Ganuary, February, and March) isnot available until Tate April or May. And then, iLis only a 3-month average rather than a manth-by-month, olow-by-blow price index. From @ timeliness perspective, the GDP orice deflator comes up short on Providing decision makers witn the Information needed. GAME THEORY GEOGRAPHIC MOBILITY => x Recommended Citation: (GDP PRICE DEFLATOR, AmosWEB Encyclonomic WEB*pedia, hitp://www_AmosWEB.com, AmosWEB LLC, 2000-2015. [Accessed September 30, 2015]. Check Out These Related Terms. | censure ice iden | roduer Brice Index | Whole Pe inde | Consumes (lal Werksrs | Gand GD arice dele | 0 For A Little Background. [pbb ae! ‘And For Further Study. | defies | lsonton | pf problems | infin cases | cemand-pul neon Psuch.nush nfs | unsmglovens cae | Buren f abo Sanches | bur teenie anals | Aatond Inco oonumsc Reseach | annveoate market | augrenatemavket arate | Search again? (antes Back to the WEB*pedia Adv med Leari ance Programmed Leaming System hay Anas «Rani Anes x > cel hitpikwaw amaswsb,comieg-infawe nav p?s=wpd8c=dsp8 b How toCaleuste > Inston Rate = GDP Par Canta is | ossrarana | EoONware | asspeta) | Quizasic | PED Gude | Mra crac | 3DP ricer deflator ae9302015 ‘AmasWEB is Economics: Encycloromic WEB'pedia ser comment or aeons to WebMaster x hitpikwaw amaswsb,comieg-infawe nav p?s=wpd8c=dsp8 ae