Measuring the Economy

Three headline numbers

• GDP = market value of final goods produced: \(Y = C + I + G + NX\).
• Nominal vs real: nominal GDP uses current prices; real GDP uses base-year prices (so it moves only when quantities move).
• GDP deflator \(= \dfrac{\text{Nominal GDP}}{\text{Real GDP}}\times 100\) — a price index for everything the country produces.
• Unemployment rate \(u = \dfrac{\text{Unemployed}}{\text{Labor force}}\);   LFPR \(= \dfrac{\text{Labor force}}{\text{Adult population}}\).

Try it. Change quantities and current prices to see nominal, real, and the deflator split apart. Then switch to the labor-market tab.

#| standalone: true
#| viewerHeight: 520

library(shiny)
ui <- fluidPage(
  tags$head(tags$style(HTML("body{font-family:'Inter',system-ui,sans-serif;}
    .sb{background:#f0f4f8;border-radius:6px;padding:12px 14px;margin-top:8px;font-size:14px;line-height:1.9;} .sb b{color:#1f3b73;}"))),
  tabsetPanel(
    tabPanel("GDP & the deflator",
      sidebarLayout(
        sidebarPanel(width=4,
          helpText("One good. Base-year price fixed at $4."),
          sliderInput("q","Quantity produced:",min=0,max=20,value=12,step=1),
          sliderInput("p","Current price:",min=1,max=10,value=5,step=1),
          uiOutput("gdp")),
        mainPanel(width=8, plotOutput("bar",height="420px")))),
    tabPanel("Labor market",
      sidebarLayout(
        sidebarPanel(width=4,
          sliderInput("E","Employed:",min=0,max=300,value=180,step=5),
          sliderInput("U","Unemployed:",min=0,max=100,value=20,step=5),
          sliderInput("N","Not in labor force:",min=0,max=200,value=50,step=5),
          uiOutput("lab")),
        mainPanel(width=8, plotOutput("pie",height="420px"))))
  ))
server <- function(input,output,session){
  nom <- reactive(input$q*input$p)
  rea <- reactive(input$q*4)
  output$gdp <- renderUI(HTML(sprintf("<div class='sb'>Nominal GDP = q&times;p = <b>%.0f</b><br>Real GDP (base) = q&times;$4 = <b>%.0f</b><br>GDP deflator = <b>%.1f</b></div>",
    nom(),rea(),nom()/rea()*100)))
  output$bar <- renderPlot({ par(mar=c(3,4.4,1,1))
    barplot(c(Nominal=nom(),Real=rea()),col=c("#b5462a","#1f3b73"),ylab="GDP",las=1,ylim=c(0,max(nom(),rea())*1.2))
  })
  LF <- reactive(input$E+input$U); pop <- reactive(input$E+input$U+input$N)
  output$lab <- renderUI(HTML(sprintf("<div class='sb'>Labor force = <b>%.0f</b><br>Adult pop = <b>%.0f</b><br>Unemployment u = <b>%.1f%%</b><br>LFPR = <b>%.1f%%</b></div>",
    LF(),pop(),100*input$U/LF(),100*LF()/pop())))
  output$pie <- renderPlot({ par(mar=c(1,1,1,1))
    pie(c(Employed=input$E,Unemployed=input$U,`Not in LF`=input$N),col=c("#1c6b4a","#b5462a","#9aa4b2"))
  })
}
shinyApp(ui,server)

What to notice

• Raise only current prices → nominal GDP rises, real GDP doesn’t → the deflator rises. That’s inflation.
• Raise only quantities → real GDP rises too.
• In the labor tab, moving people to “not in labor force” lowers the LFPR but can lower measured unemployment — the denominators differ.