Obviously, the two measures look quite different: Chain weighted gdp worked exampl series is correct? The reason is that the components of GDP that grow fastest tend to be those that exhibit the smallest price increases, or even price declines, so the fixed-weighted real GDP measure tends to weight these components more heavily than later prices would suggest.
One is constructed by dividing nominal equipment and software investment by nominal GDP. The same method applies to the other components of GDP, real computer output and real orange output.
To see how this happens, consider an economy consisting of just two sectors—computers and oranges—and whose consumers spend half their income on computers and half their income on oranges each year. The lesson from this example is that one must be very careful in using ratios and sums of the components of real GDP because these series lack additivity.
Which growth measure is right, and why are the two rates different? In this case, then, the nominal share is more informative. Conclusion The use of chain-weights instead of fixed-weights in the NIPA data is a significant step forward. If the chain-weighted measures are preferred and the fixed-weighted measures are no longer reported, then what is there to be careful about?
Sincethese chain-weighted measures have been reported in the NIPA data, and one rarely encounters the fixed-weighted measures. In the reference year, by construction, the real chain-weighted outputs sum to equal GDP because all are equal to their nominal counterparts.
In this example, the contribution of oranges to GDP essentially disappears, even though consumers always spend half their nominal income on oranges.
The chain-weighted measure of real GDP solves this problem by updating the weights in every period.
This price has been declining very rapidly over this period, in large part reflecting the rapid productivity growth in semiconductor production. The same thing is true with a fixed-weight measure of real GDP. Ah, but be careful! Two candidates for this share are plotted in Figure 2.
Reference This Economic Letter discusses a topic that at first glance appears to be boring and technical but that in fact turns out to be quite important: A natural way to control for price inflation is to value GDP in both periods using the same, constant set of prices.
The other is constructed by dividing Chain weighted gdp worked exampl equipment and software investment by real GDP. It turns out that one of the main advantages of the fixed-weighted measures of real GDP is lost: The difference between the two series is a relative price: Why chain weights are preferred A fundamental issue in comparing GDP this year with GDP in years past is determining how much of any increase is real and how much reflects price inflation.
In contrast, using the more accurate chain-weighting, the average annual growth rate over this period was a full percentage point higher at 2. Nevertheless, this more accurate picture does come at a cost: For example, one might naturally wonder how the share of equipment and software investment in GDP has changed over time.
It should provide policymakers, forecasters, and businesses with a more accurate picture of economic growth. Although this was relatively rapid compared to the growth rates observed earlier in the decade, it pales in comparison to the growth rate calculated using a fixed-weighted measure, which rises sharply afterreaching a rate of 6.
To illustrate, consider this simple question: What happens if we apply the chain-weighted approach in the computers-oranges example? To get an intuition about why this is so, we can return to the computers-oranges economy. However, it is not true of the chain-weighted indexes for real GDP and its components: Not surprisingly, similar measurement issues arise at the industry level.
However, because real chain-weighted GDP is not additive, there is no reason for this real ratio to be between zero and one. For example, the growth rate between and is computed using prices that prevailed in andwhile the growth rate between and is computed using prices that prevailed in and For example, according to fixed-weighted measures based on prices, the manufacturing sector grew at a rate of 1.The acronym PIB means Gross Domestic Product and is the sum of all the wealth produced in a country, state, city or any economy.
It is the main indicator of an economy, be it national, regional or local, as in a city, for example.
This gives us the chain weighted growth rate of real GDP for So to calculate Real GDP we multiply real GDP by this growth rate: (6, + (6,*%)) = $8, Repeating the same process for gives us the following: quantities at prices: See part a, $9, Oct 18, · mint-body.com for more FREE video tutorials covering Macroeconomics.
Start studying Macro exam 2.
Learn vocabulary, terms, and more with flashcards, games, and other study tools. An individual worked for an airline that went out of business because the airline was unable to meet new federal safety standards. Suppose that in the chain-weighted price index for GDP in Estonia is and the chain.
Student Instruction Sheet. Introduction. In this exercise, we will calculate chain-weight real GDP figures from raw data. Formally, chain-weight real GDP (Yt) for year t is calculated from the prices (p) and quantities (q) of goods at certain time periods (t).
Chain-Weighted GDP Worked Example (corrected version of pg.
35 in text) One problem with traditional “real GDP” calculations is .Download