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
Click Here for Khan Academy Video, Lesson, and Practice on Components of GDP
Click Here for Khan Academy Video, Lesson and Practice on Limits of GDP Data
Click Here for Video detailing the various ways to Calculate GDP
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.
Click Here for Interactive Economic Growth Data from the World Bank
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.
Unemployment has disproportionately affected groups through history. Below is an example of how The Great Depression disproportionately affected African-American unemployment:
Last Hired, First Fired: How the Great Depression Affected African Americans
Video 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.
CPI Inflation Calculator provided by the Bureau for Labor Statistics.
Click Here for Interactive Data Sheet on Annual Inflation by Country from the World Bank
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
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