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E.5.2 Explain how Gross Domestic Product (GDP), economic growth, unemployment, and inflation are calculated.


Focus Question: How is GDP, economic growth, unemployment, and inflation calculated?


Gross Domestic Product (GDP) is calculated by adding together the various components of the economy that are measured of all the goods and services produced.
Basic Formula:Y = C + I + E + G
Y = GDP
C = Consumer Spending
I = Investment made by industry
E = Excess of Exports over Imports
G = Government Spending

Economic Growth does not adjust for inflation and is expressed in nominal terms through measuring of the rate of change that a nation's gross domestic product goes through from one year to another.

Economic_growth_rate.gif

Unemployment is calculated by first adding the number of employed and unemployed people together (total number). The unemployment rate is the ratio of the number of people unemployed over the total number of people in the labor force.
Multimedia.pngVideo explaining how to calculate the National Unemployment rate.

Inflation can be calculated two different ways, using either Consumer Price Index (CPI) or the GDP deflator.
  • Calculating using CPI: Determine base price of a good. Measure a comparison price of the same good. The percentage difference is the inflation rate.
  • Calculating using the GDP deflator: Divide the nominal GDP by the real GDP.
Multimedia.pngCPI Inflation Calculator provided by the Bureau for Labor Statistics.

Sources:
1. Calculating GDP, Mindtools.net. http://www.mindtools.net/GlobCourse/formula.shtml
2. Economic Growth Rate, Investopedia.com. http://www.investopedia.com/terms/e/economicgrowthrate.asp
3. How to Calculate the National Unemployment Rate, Howcast.com http://www.howcast.com/videos/384322-How-to-Calculate-the-National-Unemployment-Rate
4. Measuring the Economy 2, Sparknotes.com. http://www.sparknotes.com/economics/macro/measuring2/section1.rhtml