NOMINAL GDP
 Real GDP is the sum-total of the
 Nominal GDP is the sum-total
of the economic output
produced in a year valued at
the current market price.
 Current Market Price.
 Nominal GDP doesn’t take
inflation into account.
GDP deflator =
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
Real GDP × 100
Nominal GDP =
Real GDP
× GDP deflator
Income Approach
 Here, GDP can be calculated by
taking the total amount earned
by every household,
companies, and all firms in the
economy. It’s possible to
express the income approach
formula to GDP
REAL GDP
economic output produced in a
year values at a pre-
determined base market price.
 Base Year’s Market Price.
 Real GDP takes inflation into
account; it’s called inflation-
adjusted GDP.
Quantity of Product =
𝑃𝑟𝑖𝑐𝑒
÷ 𝐺𝐷𝑃
Real GDP =
Quantity of Product
× GDP of Base Year
Expenditure Approach
 In this approach, GDP must be
calculated by taking the total
amount spent on goods and
services that have been
produced in the economy
within a given period of time.
Spot Exchange Rate
 The rate of a foreign exchange
contract for immediate
delivery (usually within two
days). The spot rate represents
the price that a buyer expects
to pay for foreign currency in
another currency. These
contracts are typically used for
immediate requirements, such
as property purchases and
deposits, deposits on cards,
etc. You can buy a spot
contract to lock in an exchange
rate through a specific future
date. Or, for a modest fee, you
can purchase a forward
contract to lock in a future
rate.
Gross National Product
Gross Domestic Product
 Considers the market value of
all final goods and services
produced by factors of
production such as capital and
labor located within a country
or economy during the given
period of time, generally a
yearly or a quarterly.
Forward Exchange Rate
 A forward foreign exchange is
a contract to purchase or sell a
set amount of a foreign
currency at a specified price
for settlement at a
predetermined future date
(closed forward) or within a
range of dates in the future
(open forward). Contracts can
be used to lock in a currency
rate in anticipation of its
increase at some point in the
future. The contract is binding
for both parties.
 Considers the market value of
all final goods and services
produced by factors of
production such as capital and
labor supplied by citizens of a
country, regardless of whether
this similar production takes
place internally within the
province or outside of the
country.
GDP =
C + G + I + NX
C – consumption
G – Govt Expenditures
I – Investments
NX – Export - Import
Import
 Appears, when domestic
companies buy goods abroad
and bring them to a domestic
country for sale. The common
reason for importing goods is
to meet demand on goods,
which cannot be produced
domestically at an affordable
price or at all.
Gross Domestic Product
 Considers the market value of
all final goods and services
produced by factors of
production such as capital and
labor located within a country
or economy during the given
period of time, generally a
yearly or a quarterly.
Export
 Appears when the domestic
companies sell their products
or services abroad. There are
several reasons, why
companies decide to export
their output. First, they may
want to enter geographically
new markets and thus expand
and internationalize.
Net Domestic Product
 need to deduct the
depreciation of a country’s
capital goods from its GDP.
Without knowing the value of
the GDP first, you can’t get the
value of the NDP. Depreciation
is defined as the reduction in
the value of an asset with the
passage of time due, in
particular, to wear and tear.
NDP =
GDP
- Depreciation
Tariff
 A kind of tax, which is paid on
the import of goods and
services. It is used as a tool to
limit trade, because, tariffs
increase the price of foreign
goods and services and thus it
makes them more expensive
for the customers.
 Tariff refers to the tax levied
on import or export of goods.
 Increases GDP.
 Fall in consumer's surplus and
rise in producer's surplus.
 Fall in consumer's surplus and
rise in producer's surplus.
Fixed/Restricted Exchange
Rates
 Rate is a rate the government
sets and maintains as the
official exchange rate. A set
price will be determined
against a major world currency
(usually the U.S. dollar, but also
other major currencies such as
the euro, the yen, or a basket
of currencies).
Quota
 Quota refers to a defined upper
limit set by the government, on
the number of goods or
services imported or exported
from/to other countries, in a
particular period. It is a
measure used in the regulation
of trade volume between
nations.
 Quota refers to the restriction
imposed on the quantity of
goods imported.
 No effect on GDP.
 Fall in consumer surplus.
 To importers
Free-Floating Rates
 Free floating exchange rate is
determined by the private
market through supply and
demand. A floating rate is often
termed "self-correcting," as any
differences in supply and
demand will automatically be
corrected in the market.
Trade Surplus
 For the country exporting goods
in demand, its companies
receive increasing numbers of
foreign orders. These
companies also either receive
and accumulate foreign
currency that foreign firms use
to purchase goods, or financial
institutions receive foreign
currency and see a rising
demand for the exporting
country's currency, causing its
price on international markets
to rise. All of these aspects of a
trade surplus allow the
government, financial
institutions and exporting
companies in the country to
acquire wealth.
Balance of Trade
 is a statement that captures the
country's export and import of
goods with the remaining
world. Transactions related to
goods only. It gives a partial
view of the country's economic
status.
Trade Deficit
 A country whose firms import
more foreign goods than the
domestic goods they export has
a trade deficit. Firms receive
local currency from the sale of
foreign goods and trade that
currency to buy more foreign
goods. The local currency may
fall in price relative to the
currencies of countries
producing products in demand,
and much of the money the
population spends on foreign
goods ends up in the income
statements and bank accounts
of foreign companies,
effectively sending national
wealth to other countries.
Balance of Payment
 is a statement that keeps track
of all economic transactions
done by the country with the
remaining world. Transactions
related to both goods and
services are recorded. It gives a
clear view of the economic
position of the country.
Free Trade Regime
 Free trade increases the size of the
economy as a whole. It allows
goods and services to be produced
more efficiently. That’s because it
encourages goods or services to be
produced where natural resources,
infrastructure, or skills and
expertise are best suited to them. It
increases productivity, which can
lead to higher wages in the long
term. There is widespread
agreement that rising global trade
in recent decades has increased
economic growth.
 Free trade is good for consumers. It
reduces prices by eliminating tariffs
and increasing competition.
Greater competition is also likely to
improve quality and choice.
Comparative Advantage
 Is the Economy’s ability to
produce goods and services at a
lower opportunity cost than the
other countries due to their
specialization of resources.
Protectionism Regime
 Protectionism can also help
build up new industries. In
sectors with high start-up costs,
new firms might find it difficult
to compete if there is not
support from government in
the form of tariffs or subsidies.
Once they have become
competitive, such barriers can
be removed.
 Protectionism can be used to
safeguard ‘strategic’ industries
such as energy, water, steel,
armaments and food. For
example, ‘food security’ may be
seen as important so that we
can feed ourselves if something
terrible happens to disrupt the
system of world trade.
Absolute Advantage
 Is a country’s ability to produce
goods and services than other
countries using the same
amount of resources.