Contact Details
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ECON 1 – Section 13
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Measuring GDP and
Unemployment
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GSI: Ramon Estopina
Office Hours: Thursday 1:45-3:45 PM
Office: Evans 508-7
Email: estopina@haas.berkeley.edu
Handouts (only sections 104 & 133) after
class in: http://www.ocf.berkeley.edu/~jaychen/econ1/
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Oct. 16th, 2002
ECON 1 – Section 13 – Page 1
GSI: R. Estopina
Please read: Read before downloading!.
Oct. 16th, 2002
Section 13 Agenda
Midterm Grades review (10 min).
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Problem 17.1 (10 min).
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Problem 18.2 (10 min).
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Problem 18.4 (10 min).
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Problem 18.5 (10 min).
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Re-cap (aprox 3 min, let’s see).
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Pick up your Midterm Exams (and
relax) !!
For our sections
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GSI: R. Estopina
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And, what you all
wanted to know
(and were not
afraid to ask):
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61.5
90th
56
85th
53
80th
49
70th
44.8
60th
41
50th
37
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40th
34
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Standard of living, Economic growth,
Recession & expansion.
Labor productivity, Unemployment
Inflation, Positive vs normative analysis
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Chapter 18:
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30th
30
20th
25.5
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10th
19.5
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Oct. 16th, 2002
<file>
ECON 1 – Section 13 – Page 5
GSI: R. Estopina
Chapter 17:
Score
95th
49 = A34 = B20 = C-
ECON 1 – Section 13 – Page 4
Review of Last Lecture - 10/14th
Percentile
Cutoff scores:
Median=37 / Mean: 37.2 / SD: 14
Max=72 / Min=3
Oct. 16th, 2002
Midterm Review - 2
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104 – Mean: 37 / SD: 13
133 – Mean: 31 / SD: 13
For all the class:
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ECON 1 – Section 13 – Page 3
GSI: R. Estopina
Midterm Review
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Oct. 16th, 2002
ECON 1 – Section 13 – Page 2
GSI: R. Estopina
Oct. 16th, 2002
Gross domestic product
Consumption, Investment, Government
purchases, Net exports
GDP expenditure method & income method
Components using expenditure method
GDP as imperfect measure of well-being
ECON 1 – Section 13 – Page 6
GSI: R. Estopina
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Problem 17.1 (cont’d)
Problem 17.1 (F&B page 450)
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Over the next 50 years the Japanese
population is expected to decline, while
the fraction of the population that is
retired is expected to increase sharply.
What are the implications of these
changes for total output and average
living standards in Japan, assuming
that
average
labor
productivity
continues to grow?
What if average labor productivity
stagnates?
Oct. 16th, 2002
ECON 1 – Section 13 – Page 7
GSI: R. Estopina
Slowing population growth + Increased
share of retired = Slower growth in the
number of people employed.
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As average labor productivity = (Output /
Employed Worker) continues to grow at
earlier rates, total output will still grow more
slowly than before, because of slower
growth in the number of workers.
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If average labor productivity stagnates, then
total output will grow very slowly or even
decline.
Oct. 16 , 2002
ECON 1 – Section 13 – Page 8
GSI: R. Estopina
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th
Problem 17.1 (Conclusion)
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Remember: Living standards = the degree to which
people have access to goods and services that make
their lives easier, healthier, safer and more enjoyable.
Depend not on total output but on output divided by the
total population.
Slowing population growth reduces total output but also
the number of people who share that output.
So slower population growth in itself should not affect
living standards.
However, a reduced share of the population that is
working, all else equal, will reduce output per person,
lowering living standards.
Slower productivity growth will only worsen this
problem.
Oct. 16th, 2002
ECON 1 – Section 13 – Page 9
GSI: R. Estopina
Problem 18.2 (F&B page 479)
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Remember:
Y = C + I + G + NX
G = Government purchases (by federal, state and
local governments) of final goods and services BUT
doesn’t include TRANSFER PAYMENTS…
TRANSFER PAYMENTS: payments made by the
government in return for which no current goods or
services are received.
Transfer payment; GDP does not change.
Oct. 16th, 2002
<file>
ECON 1 – Section 13 – Page 11
Remember:
Y = C + I + G + NX
G = Government purchases (by federal, state and
local governments) of final goods and services…
Government purchase of a service so GDP
increases by $1 billion
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Oct. 16th, 2002
ECON 1 – Section 13 – Page 10
GSI: R. Estopina
Problem 18.2 (cont’d)
B) The US Govm’t pays $1B in salaries to
Social Security recipients.
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How would each of the following transactions
affect the GDP of the US?
A) The US Govm’t pays $1B in salaries for
govm’t workers.
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Problem 18.2 (cont’d)
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Total population = Employed + Unemployed + Out of
labor force (F&B 474)
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GSI: R. Estopina
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C) The US Govm’t pays a US firm $1B
for newly produced airplane parts.
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Again:
Y = C + I + G + NX
G = Government purchases (by federal,
state and local governments) of final goods
and services…
Government purchase of a good so GDP
increases by $1 billion
Oct. 16th, 2002
ECON 1 – Section 13 – Page 12
GSI: R. Estopina
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Problem 18.2 (cont’d)
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Problem 18.2 (Conclusion)
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E) The US Govm’t pays Saudi Arabia $1B for
crude oil to add to US oil reserves.
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D) The US Govm’t pays $1B in interest to
holders of US Govm’t bonds.
Oct. 16th, 2002
ECON 1 – Section 13 – Page 13
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GSI: R. Estopina
Oct. 16th, 2002
What is the effect both in US GDP and on the
four components of aggregate expenditure?
Never forget:
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U.S. GDP and consumption both rise by the
value of the new car.
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Your mother-in-law buys a new car
imported from Sweden.
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C = Consumption (spending by households)
I = Investment (spending by firms)
G = Government Purchases
NX = Net Exports = Exports - Imports
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Oct. 16th, 2002
ECON 1 – Section 13 – Page 15
GSI: R. Estopina
Oct. 16th, 2002
Problem 18.4 (cont’d)
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U.S. investment rises by the value of the car
(purchase of the car by a business counts as
investment).
And US GDP rises in the same amount.
Your mother-in-law’s car rental business buys
a new car imported from Sweden.
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Investment rises by the value of the car…
… but NX fall by the value of the car (as imports
rise).
No change in U.S. GDP.
Oct. 16th, 2002
<file>
ECON 1 – Section 13 – Page 17
Consumption rises by the value of the car…
… but NX fall by the value of the car (as
imports rise).
No change in U.S. GDP.
ECON 1 – Section 13 – Page 16
GSI: R. Estopina
Problem 18.4 (cont’d)
Your mother-in-law’s car rental business buys
a new car from a US producer.
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GSI: R. Estopina
Your mother-in-law buys a new car from
a US producer.
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Remember:
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ECON 1 – Section 13 – Page 14
Problem 18.4 (cont’d)
Y = C + I + G + NX
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Y = C + I + G + NX
G = Government purchases (by federal, state and local
governments) of final goods and services…
.. But NX = Net Exports (Exports – Imports)
Remember: GDP is the market value of the final goods
and services produced in a country during a given
period.
Government purchase of goods of $1 billion is exactly
offset by net exports of -$1 billion (the oil is imported)
GDP does not change. This makes sense, since no
additional production occurred within the United
States.
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Problem 18.4 (F&B page 479)
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Again:
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Remember:
Y = C + I + G + NX
G = Government purchases (by federal,
state and local governments) of final goods
and services. Doesn’t include transfer
payments, nor INTEREST PAID ON
GOVERNMENT DEBT (F&B page 463).
This is a Government interest payment; GDP
does not change .
GSI: R. Estopina
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The US Govnm’t buys a new, domestically
produced car…
…for the use of your mother-in-law,
… who has been appointed the
ambassador to Sweden…
… that is the country where everybody
goes to the sauna.
Oct. 16th, 2002
ECON 1 – Section 13 – Page 18
GSI: R. Estopina
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Problem 18.4 (Conclusion)
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Very usual situation, isn’t it?
U.S. Government purchases rises by the value of the
car.
So does US GDP.
But what about your mother-in-law?
Probably she went to buy a fur coat before going to
Sweden …
… so maybe Consumption and GDP both will increase
a little bit too…
… if the coat is produced in the US, of course.
And what about the sauna?
Nothing that affects this problem. Have you ever seen
your mother-in-law in the sauna???
Oct. 16th, 2002
ECON 1 – Section 13 – Page 19
GSI: R. Estopina
Problem 18.5 (F&B page 480)
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Here are some data for an economy.
Consumption expenditures
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Now what?
What you all were waiting for…
DO IT BY YOUR OWN AND BRING IT TO
NEXT SECTION!!!
BENFITS for you: This problem is very useful
to identify the different components of GDP.
BENEFITS for me: I’ll see how many of you
do “voluntary” problems.
In any case, we’ll go over the problem in the
next section.
Oct. 16th, 2002
<file>
ECON 1 – Section 13 – Page 21
GSI: R. Estopina
75
Government purchases of goods and services
200
Construction of new homes and apartments
100
Sales of existing homes and apartments
200
Imports
50
Beginning-of-year inventory stocks
100
End-of-year inventory stocks
125
Business fixed investment
100
Government payments to retirees
100
Household purchases of durable goods
150
Oct. 16th, 2002
ECON 1 – Section 13 – Page 20
GSI: R. Estopina
Next class
Problem 18.5 (cont’d & Conclusion)
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$600
Exports
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Next Class:
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Section 14 – Monday, Oct 21st
PS#3 ready in Econ-1 website next Monday!!!
Read ch. 19 & 20
You can download handouts this afternoon.
Thank you for coming on time !!!
Enjoy the weekend !!.
Oct. 16th, 2002
ECON 1 – Section 13 – Page 22
GSI: R. Estopina
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