Chapter 2: The Data of Macroeconomics. Stock vs. Flow Stock: quantity measured at a given point in...
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Transcript of Chapter 2: The Data of Macroeconomics. Stock vs. Flow Stock: quantity measured at a given point in...
![Page 1: Chapter 2: The Data of Macroeconomics. Stock vs. Flow Stock: quantity measured at a given point in time –Wealth –Debt –Budget Flow: quantity measured.](https://reader035.fdocuments.in/reader035/viewer/2022062407/56649d2a5503460f949ff720/html5/thumbnails/1.jpg)
Chapter 2:The Data of MacroeconomicsChapter 2:The Data of Macroeconomics
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Stock vs. Flow
Stock: quantity measured at a given point in time– Wealth– Debt– Budget
Flow: quantity measured per unit of time– Income– Employment– Price
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The Circular Flow on Income and Product
Households: – sell labor resources to earn income– spend income to buy products
Firms: – buy labor resources to produce products– sell products to earn income
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The Circular Flow on Income and Product
Firms Households
Labor Resources
Income Payment
Products
Consumption Expenditure
Product Market
Labor Market
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Gross Domestic Product
Market value of all final goods and services an economy produces in a current time period (year or quarter)
Total income = Total expenditure Total value-added (value of output minus value of inputs at each production stage)
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GDP Adjustments
The GDP excludes the following items:
– Intermediate goods: avoid double counting– Used goods: already counted– Illegal goods and services: not to be produced – Self-produced goods and services: non-market
transactions
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GDP Adjustments
Treatment of inventories:
– Accumulation is treated as “expenditure,” thus reducing GDP
– Reduction is treated as a purchase (+) and a disinvestment (-), hence offsetting each other
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GDP Adjustments
Imputation: estimation of the value of services
– Market rent for owner-occupied homes
– Cost of provision for government services
Note: Imputation is not applied to other services such as private transportation
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GDP Adjustments
Seasonal adjustment:
– GDP increases throughout the year, reaching a peak in the fourth quarter and then falling in the first quarter
– We use a statistical technique to “smooth” seasonal variations
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GDP Calculations
Nominal GDP = Current year prices * Current year quantities
Real GDP = Base year prices * Current Year quantities
GDP Deflator = Nominal GDP / Real GDP, representing the general price level
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Base Year Determination
Real GDP:– Base year changes every five years
Chain-Weighted Real GDP:– Base year changes continuously over time
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Components of GDP
Nominal GDP = Consumption + Investment + Government purchases + Net Exports: exports less imports
Y = C + I + G + NX (1997 data in %: 100 = 68 + 15 + 18 –1)
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Data
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National Income Accounting
GNP: Gross National Product= GDP + Factor payments from abroad- Factor payments to abroad
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National Income Accounting
NNP: Net National Products= GNP- Depreciation or Consumption of Fixed Capital
(about 10%)
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National Income Accounting
NI: National Income= NNPIndirect Business Taxes (e.g., sales tax; about 10%)
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National Income Accounting
PI: Personal Income= NI- Corporate Profits- Social Insurance Contributions- Net Interest+ Dividends+ Gov’t Transfer Payments to Individuals+ personal Interest Income
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National Income Accounting
DPI: Disposable Personal Income= PI- Personal Income Taxes
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Measuring Cost of Living
Consumer Price Index:
– Average weighted prices of some 400 consumer products sold in urban areas around the nation
– CPI = (current year market basket / base year market basket)*100
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GDP Deflator vs. CPI
Variable weights vs. Fixed weights
All products vs. Selected products
Domestic products vs. Domestic and imported products
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GDP Deflator vs. CPI
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Does CPI Overstates Inflation?
CPI tends to overstate inflation because
– Substitution for less expensive goods is not considered in the fixed market basket
– New goods are continuously introduced in the market
– Improvement in the quality of goods is not considered
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Population vs. Labor Force
Population = Labor force + + Not in labor force
In 1997, 203.1 million
Labor force = Employed + Unemployed
In 1997, 129.6 + 6.7 = 136.3 million
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129.6
66.8
6.7
Employed
Unemployed
Not in the labor force
Population vs. Labor Force
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Labor Market Data
Unemployment rate = unemployed as % of labor force
In 1997, (6.7/136.3)*100 = 4.9%
Labor force participation rate = labor force as % of adult population
In 1997, (136.3/203.1)*100 = 67.1%
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Unemployment Conditions
Members of the labor force
Out of work
Actively looking for work
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The Okun’s Law
For any percentage point increase in the unemployment rate, the real GDP growth rate falls by 2 percent
Change in real GDP = 3% - 2(change in unemployment rate)
Example: if unemployment increases from 4 to 6%, GDP growth rate would fall from 3 to –1%
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Growth-Unemployment Trade-off