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EC2002 Macroeconomics: Introduction, Data, Models - University of St Andrews
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EC2002: Macroeconomics Introduction, Data, Models Dr Selma Godinjak University of St Andrews Business School Department of Economics and Finance Castleclie, Oce F11 14th September 2025 Oce hours Mondays 15:3016:30 Tuesdays 15:3016;30 sg348@st-andrews.ac.uk Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary EC2002: aims Equipping you with a toolset for analysing the eect of typical macroeconomic events and the logic behind macroeconomic policies 1 Conceptual; Mathematical; ■ Graphical (Excel); ■ ■ 2 Letting you apply these tools and skills to look into real life macroeconomic phenomena; 3 Enabling you to analyse various macroeconomic policies using these tools and skills; 2 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary EC2002: some tips ■ ■ ■ Note taking is very encouraged; Do attempt solving tutorial and exercise lecture questions before seeing the solution; Make use of my oce hours; 3 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary EC2002: timetable ■ Lectures Mondays, Tuesdays, Thursdays at 2pm3pm; ■ Exercise lectures Thursdays at 3pm4pm; ■ Tutorials Various times, starting from Week 3; 4 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary EC2002 lectures: what to expect Activities ■ Questions; Short practicals; ■ Blitz quizzes (through Mentimeter); ■ ■ ■ There are occasional deliberate omissions in handouts; 5 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Readings for this week ■ ■ Blanchard, Amighini, and Giavazzi: Chapter 1, Sections 2.1, 2.3 in Chapter 2; Jones: Chapter 1, Sections 2.12.3 in Chapter 2; 6 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Macroeconomic method: explaining 1 Collect facts/data; 2 Advance a hypothesis expressed as a mathematical model; 3 Test the model's predictions against data; 4 If successful, use the model to generate further predictions; 7 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Macroeconomic method: example 1 We observe that having more workers results in more production; 2 We make a general claim that production (output) depends positively on the number of working persons in an economy; Mathematically, we can posit that there is a positive linear relationship between the number of employed workers and volume of production: Output = A · N A a positive number; N number of workers in an economy; 8 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Macroeconomic method: example Output Output = A · N A output of 1 additional worker; N number of employed workers in an economy; N This is a gross oversimplication, but it helps us to focus on what is relevant the link between the number of the employed and production; 9 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Macroeconomic method: example Can we test the model's predictions? 3 ■ ■ 4 We can track the number of employed N and volume of production in a country and check if increases in N lead to more output; We can also check the quantitative predictions (e.g. if A = 2, do we see in data that an extra worker produces 2 extra units of output?); Suppose the theory is supported what next? In macro, experiments are typically about using models to answer `what if?' questions what, according to our model, would be the gains if a half of all unemployed workers found a job? 10 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Macroeconomic method: terminology ■ ■ ■ Exogenous variables coming from outside a model (e.g. the number of employed workers), and not aected by the model; A sub-class of exogenous variables is parameters, which are just constant numbers (e.g. A above); Endogenous variables unknowns, calculated within a model (e.g. output Y ); 11 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Macroeconomic method: presentation ■ ■ ■ Words convey the intuition around which the model is built; Maths helps us to isolate our assumptions from everything irrelevant to our purposes, and makes sure that our results are sound; Diagrams visualise the relationships; 12 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary This week's plan ■ A tour on key macroeconomic variables; ■ Trends, uctuations; ■ The notions of short-run, medium-run, long-run; 13 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Aggregates of interest ■ Gross domestic product; ■ Ination; ■ GDP per capita; ■ Unemployment rate; This week we will focus on the rst three, and discuss unemployment in Weeks 4, 5; 14 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Gross Domestic Product GDP Gross Domestic Product ■ ■ Was created as part of the National Income and Product Account system (NIPA) in the US in the 1930s in the wake of the Great Depression; Later incorporated into the UN's System of National Accounts (SNA) after the Second World War; 15 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP the Magnicent Without measures of economic aggregates like GDP, policymakers would be adrift in a sea of unorganised data. [. . . ] Much like a satellite in space can survey the weather across an entire continent so can the GDP give an overall picture of the state of the economy. Samuelson and Nordhaus (1998) 16 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Gross Domestic Product: refresher 1 GDP measures the market value of all nal goods and services produced in an economy within a period of time; Market value ⇒ they have to be sold/bought; Why nal? Quick example/exercise: In 2010, Atlantis produced £60 bln worth of herring. Of it £40 bln was sold directly to customers, while the rest was used in famous Atlantean sushi restaurants to serve £90 bln worth of meals. What is Atlantis' GDP in 2010? What is its total output? How much of herring value is included in meals? 17 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP: production measure 1 GDP measures the market value of all nal goods and services produced in an economy within a period of time; Y = Total output − Intermediate expenditure = Value added Y is the standard notation for GDP UK, 2021 (ONS data): GDP Int. exp. £2 284 079 mln £1 903 524 mln Intermediate expenditure is approx. 83.3% of GDP 18 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP: income measure 2 GDP is also the total income generated in an economy Reasoning: revenues from selling goods generate benets for those producing them Y = Compensation of Gross Operating Net Taxes on + + Employees (CoE) Surplus (GOS) Products GOS = Capital income + Prots Net Taxes. . . = Taxes (such as VAT, sales tax) − Subsidies UK, 2023 (ONS data): GDP £2 687 186 mln CoE £1 683 325 mln GOS £733 981 mln Mixed* £500 620 mln Net taxes £280 837 mln 100% 49.7% 21.7% 18.6% 10.5% *Mixed income is partly CoE and partly GOS, but it cannot be split into them directly. 19 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP: expenditure measure 3 GDP is also total expenditure on nal goods in an economy Reasoning: revenues from selling goods are generated from somebody's expenditure 20 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP: circular ow diagram (simplied) Exp. on exports Exp. on imports Goods, services P rivate expenditure (domestic) Govt spending Goods H/holds Govt T axes on f actor income F irms T axes on products F actor income (CoE, GOS) F actors (labour, capital, land) 21 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP: expenditure measure 3 GDP is also total expenditure on nal goods in an economy GDP = C + I + G + N X C is Consumption; I is (Non-nancial) Investment; G is Government spending; N X = Exports − Imports is Net exports; UK, 2023 (ONS data): GDP C I G NX £2 687 186 mln £1 661 323 mln £477 060 mln £557 076 mln −£33 377 mln 100% 61.8% 17.8% 20.7% −1.2% 22 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary More on consumption and investment The dierence between consumption and investment is just about the nature of goods involved; ■ Investment is (mostly) spending on xed assets (goods that are durable and create a long-lived stream of benets); ■ Examples of xed assets ■ Tangible: Factories, machinery, vehicles, computer hardware, dwellings; ■ Intangible: New technologies, software, artistic originals; ■ ■ The rest is consumption (e.g., food, clothes, household appliances, etc.); 23 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP calculations: return to Atlantis Use the three methods to calculate GDP for the economy below In: Households Wages received Prots received Out: Consumption Investment In: Fishmongers Revenue Out: VAT Wages paid ¿80 ¿8 ¿60 ? ? ? ? In: Government VAT ? Income taxes ¿20 Out: Govt spending ¿60 In: Restaurants Revenue ¿140 ¿14 Wages paid ¿70 Fish costs ¿40 Out: VAT 24 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP: taking stock ■ GDP measures total production of nal goods, total income and total expenditure on nal goods; 1 Y = T otal output − Intermediate expenditure; 2 Y = CoE + GOS + N et T axes on P roducts; 3 Y = C + I + G + N X; ■ GDP acts as a snapshot of economic activity in an economy within a period of time; 25 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Can we use `raw' GDP? 600 UK GDP (q), £bln 500 400 300 200 100 Year 1970 1980 1990 2000 2010 2020 Data source: ONS 26 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP: zooming in. . . 580 UK GDP (q), £bln 560 540 520 500 480 Quarter Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2016 2017 2018 2019 27 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP without seasonality 580 UK GDP (q), £bln 560 540 520 500 480 Quarter Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2016 2017 2018 2019 28 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP without seasonality, zoomed out 600 UK GDP (q), £bln 500 400 300 200 100 Year 1970 1980 1990 2000 2010 2020 29 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP seasonality ■ ■ We seek to eliminate seasonality as it makes comparing dierent quarters more dicult and distorts the dynamics of a variable under study; By default, all data are presented seasonally adjusted; 30 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP: nominal, real ■ ■ ■ ■ ■ We just saw that overall GDP mostly increased recently; But changes in GDP come from those in volumes of goods produced, and those in prices; We would like to study the two eects separately; For volumes, this can be done by taking prices from one year and using them to calculate GDP in another; For example, GDP for 2015 with prices from 2014 is real GDP for 2015 with 2014 as the base year (rGDP); ■ Nominal GDP (nGDP) uses current prices; ■ By default, `GDP' and Y refer to rGDP; 31 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP: nominal, real Quick example/exercise: 2012 Herring Haddock 2013 P rices V olumes P rices V olumes £6 £4 400 250 £9 £5 450 330 Let 2012 be the base year. What is the nominal and real GDP in the two years? What if the base year is 2013? 32 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP: nominal, real Quick example/exercise: 2012 Herring Haddock 2013 P rices V olumes P rices V olumes £6 £4 400 250 £9 £5 450 330 Let 2012 be the base year. What is the nominal and real GDP in the two years? What if the base year is 2013? nGDP2012 nGDP2013 3400 5700 rGDP2012 rGDP2013 2012 base 3400 4020 2013 base 4850 5700 32 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Price index: GDP deator Price index (denoted as P ) is an aggregate characteristic of the average price level in an economy; 1 The `price' of real GDP nGDPt = Pt · rGDPt = Pt · Yt t Pt = nGDP rGDPt ■ When P is calculated this way, it is called `GDP deator'; ■ `GDP deator for 2015 with 2014 as the base year' means GDP deator calculated using nGDP in 2015 and rGDP in 2015 with 2014 as the base year; What are Atlantis' deators for 2012 and 2013, with 2012 as the base year? 33 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Price index: CPI 2 Consumer price index (CPI) the cost of a consumption basket today relative to that cost in the base year Cost of basket in year t CPIt = Cost of basket in base year ■ For CPI, we x volumes and allow prices to change; ■ CPI includes only consumer goods; ■ CPI can include imports and second-hand items; Let 2012 be the base year, and nGDP in 2012 be the consumption basket (i.e. we are going to x 2012 GDP volumes and track their cost in dierent years). What is the CPI for 2012 and 2013? The structure of the consumption basket in the UK 34 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Price indices: Why the dierence? In the two approaches, we x dierent values: Deator2013 = CPI2013 = Prices2013 × Volumes2013 Prices2012 × Volumes2013 Prices2013 × Volumes2012 Prices2012 × Volumes2012 35 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP: Growth from volumes or prices? 500 UK rGDP (q), bln 2019 pounds 400 300 200 100 Year 1970 1980 1990 2000 2010 2020 Data source: ONS 36 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP: Growth from volumes or prices? 1 UK price indices, 2019 base 0.8 0.6 Deflator CPI 0.4 0.2 Year 1970 1980 1990 2000 2010 2020 Data source: ONS 37 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Growth rates A convenient way to characterise changes in a variable is through its growth rate the percentage change in it from period to period t−1 t gY = YtY−Y = YYt−1 −1 t−1 t−1 t gP = PtP−P = PPt−1 −1 t−1 ■ ■ It turns out, the choice of base year for rGDP aects its growth rate can you verify this for Atlantis? Why the dierence? The growth rate of the price index is called the ination P −P CP It −CP It−1 rate (πt , is either πt = tP t−1 or πt = ); CP I t−1 ■ t−1 Two price indices ⇒ two inations. How dierent are they? 38 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP: How does it grow? 5% UK GDP growth rate (q) 4% 3% 2% Average = 0.56% 1% 1970 1980 1990 2000 2010 2020 Year −1% −2% −3% Data source: ONS 39 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Growth rates: useful properties ■ Very commonly yearly GDP growth rates are reported, and on average they are around four times the quarterly ones; Intuitively, if something grows by 0.56% four times in year, it does by 4 × 0.56% = 2.24% in a year; ■ The growth rate of the product of any two variables is (approximately) the sum of their growth rates Suppose the ination rate is 2% and gY (the growth rate of rGDP) is 1.5%. What is the growth rate of nGDP? See Appendix 2 (Maths Refresher) in Blanchard, Amighini, and Giavazzi 40 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP per capita (GDP pc) ■ `Per capita' is `per person' Yt yt = L t yt is GDP per capita; Lt is population; ■ Thus GDP per capita is income per person, spending per person, nal output per person; 41 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary The size of the pie, the number of mouths rGDP in 2019, bln 2017 USD 22492.45 70.87 China Luxembourg Data source: World Bank 42 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary rGDP pc in 2019, thous 2017 USD The size of the pie, the number of mouths rGDP in 2019, bln 2017 USD 22492.45 114.3 16.09 70.87 China Luxembourg China Luxembourg Data source: World Bank 42 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP and GDP per capita together UK GDP per capita (q) 8000 400 6000 UK GDP (q) 300 4000 200 2000 100 0 2019 pounds bln 2019 pounds 500 1970 1980 1990 2000 2010 2020 0 Year 43 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP behaviour: features so far ■ ■ ■ Both GDP and GDP pc grow but unevenly, with swings around the overall tendency upwards; These `swings' are known in economics as uctuations or business cycles; In the long-run, the growth component dominates uctuations; 45 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP: trend and uctuations ■ ■ ■ We interpret the trend as the trajectory of potential output what an economy can produce in normal circumstances with resources that are available and would normally be employed; Fluctuations push an economy away from that path; Therefore, potential output is how much an economy produces if it is not disturbed by uctuations; Question: can we separate the trend from uctuations? Yes, the simplest way by smoothing the line (a common technique is called the Hodrick-Prescott (HP) lter); 46 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary rGDP: behaviour over years 500 UK GDP (q), bln 2019 pounds 400 300 GDP Potential output 200 100 Year 1980 1990 2000 2010 2020 Data source: ONS 47 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Potential output: growth rate 5% UK GDP growth rate (q) 4% 3% 2% Average = 0.56% 1% 1970 −1% 1980 1990 2000 2010 2020 Year −2% −3% Data source: ONS 48 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Describing uctuations with output gap ■ A useful way to describe an economy's position relative to its potential output is with output gap the relative deviation of output Y from potential output Yn (or Ȳ in Jones) n = YYn − 1 Ỹ = Y Y−Y n ■ Positive Ỹ means being above potential output, and vice versa; 49 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources 2000 2010 2020 Year Glossary Output gap visualised 6% UK output gap (q) 5% 4% 3% 2% 1% −1% 1970 1980 1990 −2% −3% −4% −5% Data source: ONS, own calculations 50 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP behaviour: key highlights ■ GDP grows with (on average) a constant rate but unevenly, with swings around the overall tendency upwards; ■ In the long-run, the growth component dominates; ■ Does this mean we can ignore uctuations? ■ Certainly not! 51 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary GDP behaviour: uctuations zoomed in UK GDP, bln 2019 pounds 550 500 Great Recession 450 COVID-19 crisis 400 2000 Year 2005 2010 2015 2020 2025 Data source: ONS 52 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Short run, medium run, long run ■ Short run uctuations; ■ Medium run returning to the path of potential output; ■ Long run sustained growth; 53 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Trend, uctuations are they linked? ■ ■ ■ ■ The conventional belief is they are not; This is partly owing to the development of macro as a discipline; There is a strong suspicion though that `business cycles cast long shadows' (Fatás (2000)); Modelling (tractably) an economy that both grows and uctuates is, however, a rather complicated matter; 54 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Roadmap ahead ■ ■ ■ ■ ■ Starting zoomed in focus on uctuations and their causes (Short run) IS-LM model Taking a step back how to bring an economy back to its trend? (Medium run) IS-LM-PC model Zooming all the way out what allows living standards to grow over time? (Long run) Solow model, basics of endogenous growth Open economy Open economy IS-LM model Fiscal policies, debt management 55 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Free online data sources UK: Office for National Statistics (ONS); EU: European Statistical Office (Eurostat); US: Bureau of Economic Analysis (BEA); International: FRED Database, UN Data, OECD Stats; 56 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Key notions macroeconomic modelling ■ Model a mathematical description of relationships between economic variables; ■ Endogenous variable a variable determined/solved for within a model; ■ Exogenous variable a variable determined outside a model; ■ Parameter an exogenous variable expressed as a single number; 57 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Key notions: GDP and components 1. Total value added. . . ■ GDP 2. Total income. . . 3. Total nal expenditure. . . ■ ■ generated in an economy during a reporting period; Intermediate expenditure/consumption acquisition of goods and services to be used in producing other goods (e.g. raw materials); Private consumption acquisition of goods and services for the immediate satisfaction of individual or communal needs or wants (cf. investment); ■ Investment (xed investment) spending with a view to create an asset that generates a durable stream of benets (e.g. buildings, equipment, dwellings, software, new technologies); ■ Net exports dierence between exports and imports; 58 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Key notions: GDP and components ■ ■ ■ Compensation of employees (CoE) labour income, as paid for the contribution of labour input to production processes in an economy; includes wages, salaries, pension and social contributions of employers, bonuses and benets in kind; Gross operating surplus (GOS) income of all companies and public corporations; includes capital income (income paid for the contribution of capital input in production) and economic prots (income generated from the presence of market power); Mixed income (MI) income from self-employment; comprises both labour and non-labour (GOS) income components, but cannot be decomposed into them directly without further imputation; 59 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Key notions: volume and price aggregates ■ ■ ■ Real GDP (rGDP, GDP at constant prices) a volume measure of GDP, is calculated using quantities of goods from the reporting period (RP), which are then expressed in terms of prices in the base period (BP); Nominal GDP (nGDP, GDP at current prices) GDP calculated with both quantities and prices from the RP; GDP deator an aggregate measure of the price level, the ratio of nGDP to rGDP. It can be interpreted as the `price' of real GDP; ■ ■ Consumer price index (CPI) shows by how many times buying a consumption basket (a xed set of goods and services) in the RP is more expensive than in the BP. It is the ratio of the basket's cost in the RP to that in the BP; Ination a measure of price growth in an economy, the growth rate of either GDP deator or the CPI; 60 / 61 Introduction GDP Volumes, Prices Rates GDP pc Trends, Cycles Data sources Glossary Key notions: data features ■ Trend the long run tendency in the evolution of a variable (e.g. sustained growth in GDP at a roughly constant rate); ■ Fluctuations (cycles) deviations of a variable's actual values from its trend; ■ Output gap the deviation of output from its potential level relative to potential output; ■ Seasonality the presence of predictable cyclical variations in a variable, which are associated with a particular period of time (e.g. higher expenditure in the nal quarter of a year in the run-up to winter holidays); 61 / 61
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