Chapter 2. The Data of
Macroeconomics
Chapter 2. The Data of
Macroeconomics.
Homework: pp. 41-43: #2, 6, 8
Link to syllabus
Fig. 2-1 p. 17. The Circular Flow
H.W. p. 41-2 #2, 6, 8
Earlier edition may have done Okun’s
Law in chapter 2. Not this one.
Fig. 2-4 p. 19. The Circular Flow
Simplest view.
Fig 2-2 p. 20. Stocks and Flows
Fig 2-2 p. 18. Stocks and Flows
GDP as indicator of welfare is limited by distribution
(unemployment), non-market activities such as environment.
Why national income accounting? Assess health of economy
Measurement: Avoid double/multiple counting—just do value
added
Exclude most financial transactions: public transfer payments,
stock market
Exclude secondhand sales.
GDP leaves out underground economy. Includes imputed value of
household rents, not housework.
Recall: Value added = value of output – cost of purchased inputs.
2
Table 6.2 page 107. Value Added in a five-stage
process
Table 6.2 Page 107 Value added in five
stage production
Can be measured by income or
expenditures
Components of GDP (Y): Consumption (C ), Investment (I),
Gov’t purchases (G), net exports (NX)
Table 2-1 p. 26. GDP and its Major Components
Table 2-1 p. 29. GDP and its Major
Components
Other measures of income include GNP, NNP, and
National Income =NNP-Indirect business taxes. (Is a measure of
how much is earned)
National Income = wages + rents + interest + profits. Wages are
~70%
GDP by Sector:
Statistical Abstract
of the U.S.
GDP
by
Sector
GDP, $billion
3
Gini Coefficient of Inequality of the
Distribution of Income, US
Gini coefficient
0.500
0.450
0.400
0.350
0.300
0.250
0.200
0.150
0.100
0.050
0.000
1950
1960
1970
1980
1990
2000 (30)
2010
Source: US Department of Commerce
http://www.personal.umd.umich.edu/~mtwomey/econhelp/301files/Y-Dist.xlsx
Real GDP: value of goods and services at constant prices.
Price index: Cost of a basket of goods, relative to an assigned
value in a given, or base year.
Comments:
Base year is usually chosen to be a stable year
Weighted sum of individual prices
Different indexes: (products and weights) CPI, PPI, regional,
old folks, GDP Deflator.
Inflation = (Pt-Pt-1)/Pt-1
Real GDP = Nominal GDP/deflator (page 25)
Note: %Δ(P.Q) = %ΔP + %ΔQ
Comments that current method for calculating real GDP changes
price base year each time, so that we have a “chainweighted” index.
Links to US National Accounts Tables
Link to US National Accounts
NIPA on GDP
<http://www.bea.gov/bea/dn/home/gdp.htm>
Relationship of GDP, GNP, National Income, etc.
http://www.bea.gov/bea/dn/nipaweb/SelectTable.asp?Popular=Y
(Second link doesn’t work)
4
Data on US Real and Nominal
GDP
Link to my US data on Real and
Nominal GDP
(NIPAGDP1.xls)
What’s a price index?
(from Bade/Parkin) Nominal and real
price of a first class letter
Fig. 2-3 p. 32. Changes in the CPI
and in the GDP Deflator
Figure 2-3, p. 34 The CPI vs. the GDP
deflator
Pretty similar
Issues in price indexes are: changing
basket, new products, changes in
quality. Estimated to overstate by
1%/yr.
Unemployment.
Unemployment rate = Number unemployed/labor force
Problem of discouraged workers. Also, part-timers. False info and
statistical sample less important criticisms
Labor Force participation rate = Labor Force/adult population.
Fig. 2-4 p. 35. US Population and the Labor Force, 2000
Fig. 2-4 p. 37. US Population and the
Labor Force, 2007
Unemployment rate=
10.1*100/(145+10.1) =6.5%
5
Figure 2-5 p. 37. Labor Force Participation Rates
Homework: pp. 40-41 #2, 6, 8
#2 A farmer grows a bushel of wheat and sells it to the miller for $1:00;
the miller sells it to the baker for $3.00; the baker makes bread, and
Sells it for 6:00. What is the value added at each stage?
6. Question on calculation of nominal and real GDP
8. Who will each of the following change real GDP? A) hurricane
forces Disney World to close for a month. B) Discovery of a new, easyto-grow variety of wheat; c) Increased labor hostility causes increase in
strikes.
Figure 2-5 p. 38. LFPR