Task M1

-What do the variables describe?

•GDP, the gross domestic product, refers to the value of total output. There are three methods to calculate
the GDP through three different definitions:
-It is the value of the final goods and services produced during a period.
-It is the sum of added value during a period
Added Value = The selling price of a product - the cost of bought-in materials and
components
-It is the sum of income during a period
-Besides, the method in calculating the Nominal GDP ($Yt) and the Real GDP is different. The
first one is that the total quantity of final goods times their current prices, but the second one is
that the quantity times constant prices.

• NNI, the net national income, is the gross national income minus the depreciation, which
consists of the income of households, businesses, and the government.

• GDP deflator refers (Pt) to the changes in prices:

Pt = Nominal GDP / Real GDP = $Yt / Yt , t means a year
This index only refers to the output. For goods that consumers purchased from markets, economists
propose the consumer price index to measure the changes.

• Consumer Price Index, represents the average price of consumption. The Harmonised Index of
Consumer Prices(HICP) is a complied consumer price index in the European Central Bank.

• Unemployment rate is the ratio of the number of people who are unemployed to the number
of people in the labor market (force):
u = U (Unemployment) / L (the total labours)

-What are their units of measurement?

• Nominal GDP($Yt) = quantity of produced goods * the current year(t) prices

• Real GDP(Yt) = quantity of produced goods * the chosen year(t) prices

• NNI = GNI – Depreciation *(GNI = GDP +net property income from abroad) or = Consumption
+ investment + government spending + Net exports + Net foreign factor income - Indirect
taxes - Depreciation.

•GDP deflator (Pt) = Nominal GDP / Real GDP = $Yt / Yt

•Unemployment rate = U (Unemployment) / L (the total labours)

•Consumer Price Index (CPIt) = cost of market basket in current period(Ct) / cost of market
basket in base period(C0)
-What do you learn from the graphs?
• For the first graph
-The NNI is roughly parallel to the GDP but below it.
-The (Nominal) GDP, the Real GDP and the NNI all move upward

• For the second graph

-Both GDP are roughly straight upward lines.
-The slope of Euro12 line is lower than the USA line so the distinction is becoming larger with
increasing years

• For the third graph

-Before 2008, both HCPI and GDP deflator move together.
-After 2008, the difference between two lines is higher than 0.01

• For the fourth graph

-It is easy to see that the real GDP growth moves downward but the unemployment rate
moves upward.
-Since 1975, the unemployment rate has been higher than the real GDP growth
-There is a trend between 1996 and 2008 that the unemployment rate slowly decline.
However, it reaches a higher rate after 2008