Learningobjectives

1、macroeconomics fifth editionN. Gregory MankiwPowerPoint Slides by Ron CronovichCHAPTER TWOThe Data of Macroeconomicsmacro 2002 Worth Publishers, all rights reservedslide 1In this chapter, you will learn about:Gross Domestic Product (GDP)the Consumer Price Index (CPI)the Unemployment Rateslide 2Two d

2、efinitions:1.Total expenditure on domestically-produced final goods and services2.Total income earned by domestically-located factors of production slide 3slide 4Income ($)LaborGoods (bread)Expenditure ($)HouseholdsFirmsslide 5definition: A firms value added is the value of its output minus the valu

3、e of the intermediate goods the firm used to produce that output. slide 6A farmer grows a bushel of wheat and sells it to a miller for $1.00. The miller turns the wheat into flour and sells it to a baker for $3.00. The baker uses the flour to make a loaf of bread and sells it to an engineer for $6.0

4、0. The engineer eats the bread. Computevalue added at each stage of productionGDPslide 7GDP = value of final goods produced = sum of value added at all stages of productionThe value of the final goods already includes the value of the intermediate goods, so including intermediate goods in GDP would

5、be double-counting. slide 8 consumption investment government spending net exportsslide 9durable goods last a long time ex: cars, home appliancesnon-durable goodslast a short time ex: food, clothingserviceswork done for consumers ex: dry cleaning, air travel.def: the value of all goods and services

6、bought by households. Includes:slide 10slide 11def1: spending on the factor of production capital.def2: spending on goods bought for future use.Includes:business fixed investmentspending on plant and equipment that firms will use to produce other goods & servicesresidential fixed investmentspending

7、on housing units by consumers and landlordsinventory investmentthe change in the value of all firms inventoriesslide 12slide 13Capital is one of the factors of production. At any given moment, the economy has a certain overall stock of capital. Investment is spending on new capital. slide 14Example

8、(assumes no depreciation): 1/1/2002: economy has $500b worth of capital during 2002:investment = $37b 1/1/2003: economy will have $537b worth of capitalslide 15stockflowa persons wealtha persons saving# of people with# of new collegecollege degreesgraduatesthe govt. debtthe govt. budget deficitFlowS

9、tockMore examples:slide 16G includes all government spending on goods and services.G excludes transfer payments (e.g. unemployment insurance payments), because they do not represent spending on goods and services. slide 17slide 18def: the value of total exports (EX) minus the value of total imports

10、(IM)slide 19Y = C + I + G + NXwhere Y = GDP = the value of total output C + I + G + NX = aggregate expenditureslide 20Suppose a firm produces $10 million worth of final goodsbut only sells $9 million worth.Does this violate the expenditure = output identity?slide 21Unsold output goes into inventory,

11、 and is counted as “inventory investment”whether the inventory buildup was intentional or not. In effect, we are assuming that firms purchase their unsold output. slide 22We have now seen that GDP measurestotal incometotal outputtotal expenditurethe sum of value-added at all stages in the production

12、 of final goodsslide 23Gross National Product (GNP): total income earned by the nations factors of production, regardless of where locatedGross Domestic Product (GDP):total income earned by domestically-located factors of production, regardless of nationality.(GNP GDP) = (factor payments from abroad

13、) (factor payments to abroad)slide 24In your country, which would you want to be bigger, GDP or GNP? Why?slide 25U.S.A. 0.1% Bangladesh 3.3 Brazil -2.0 Canada -3.2 Chile -8.8 Ireland -16.2 Kuwait 20.8 Mexico -3.2 Saudi Arabia 3.3 Singapore 4.2 slide 26U.S.A. 0.1% Bangladesh 3.3 Brazil -2.0 Canada -3

14、.2 Chile -8.8 Ireland -16.2 Kuwait 20.8 Mexico -3.2 Saudi Arabia 3.3 Singapore 4.2 slide 27GDP is the value of all final goods and services produced. Nominal GDP measures these values using current prices. Real GDP measure these values using the prices of a base year. slide 28Changes in nominal GDP

15、can be due to:changes in prices changes in quantities of output producedChanges in real GDP can only be due to changes in quantities,because real GDP is constructed using constant base-year prices. slide 29Compute nominal GDP in each yearCompute real GDP in each year using 2001 as the base year.2001

16、20022003PQPQPQgood A$30900$311,000$361,050good B$100192$102200$100205slide 30Nominal GDP multiply Ps & Qs from same year2001: $46,200 = $30 900 + $100 192 2002: $51,400 2003: $58,300Real GDP multiply each years Qs by 2001 Ps2001: $46,3002002: $50,000 2003: $52,000 = $30 1050 + $100 205slide 31slide

17、32The inflation rate is the percentage increase in the overall level of prices.One measure of the price level is the GDP Deflator, defined asNominal GDPGDP deflator = 100Real GDPslide 33Use your previous answers to compute the GDP deflator in each year. Use GDP deflator to compute the inflation rate

18、 from 2001 to 2002, and from 2002 to 2003. Nom. GDPReal GDPGDP deflatorinflationrate2001$46,200$46,200n.a.200251,40050,000200358,30052,000slide 34Nom. GDPReal GDPGDP deflatorinflationrate2001$46,200$46,200100.0n.a.200251,40050,000102.82.8%200358,30052,000112.19.1%slide 35Example with 3 goods For goo

19、d i = 1, 2, 3Pit = the market price of good i in month tQit = the quantity of good i produced in month tNGDPt = Nominal GDP in month tRGDPt = Real GDP in month tslide 36ttNGDPGDP deflatorRGDP1001t1t2t2t3t3ttP QP QP QRGDP1001t2t3t1t2t3ttttQQQPPPRGDPRGDPRGDP100The GDP deflator is a weighted average of

20、 prices. The weight on each price reflects that goods relative importance in GDP. Note that the weights change over time.slide 37EX:If your hourly wage rises 5% and you work 7% more hours, then your wage income rises approximately 12%.slide 38EX: GDP deflator = 100 NGDP/RGDP.If NGDP rises 9% and RGD

21、P rises 4%, then the inflation rate is approximately 5%.slide 39Over time, relative prices change, so the base year should be updated periodically.In essence, “chain-weighted Real GDP” updates the base year every year. This makes chain-weighted GDP more accurate than constant-price GDP.But the two m

22、easures are highly correlated, and constant-price real GDP is easier to computeso well usually use constant-price real GDP. slide 40A measure of the overall level of prices Published by the Bureau of Labor Statistics (BLS) Used to track changes in the typical households cost of livingadjust many con

23、tracts for inflation (i.e. “COLAs”)allow comparisons of dollar figures from different yearsslide 411.Survey consumers to determine composition of the typical consumers “basket” of goods.2.Every month, collect data on prices of all items in the basket; compute cost of basket3.CPI in any month equalsC

24、ost of basket in that month100Cost of basket in base periodslide 42The basket contains 20 pizzas and 10 compact discs. prices:pizzaCDs2000$10$152001$11$152002$12$162003$13$15For each year, compute the cost of the basket the CPI (use 2000 as the base year) the inflation rate from the preceding yearsl

25、ide 43cost of inflationbasket CPI rate2000$350100.0n.a.2001 370105.75.7%2002 400114.38.1%2003 410117.12.5%slide 4416.2%40.0%4.5%17.6%5.8%5.9%2.8%2.5%4.8%Food and bev.HousingApparelTransportationMedical careRecreationEducationCommunicationOther goods andservicesslide 45Example with 3 goods For good i

26、 = 1, 2, 3Ci = the amount of good i in the CPIs basketPit = the price of good i in month tEt = the cost of the CPI basket in month tEb = cost of the basket in the base periodslide 46tbECPI in month E100t 1t12t23t3bP C + P C + P CE1003121t2t3tbbbCCCPPPEEE100The CPI is a weighted average of prices. Th

27、e weight on each price reflects that goods relative importance in the CPIs basket. Note that the weights remain fixed over time.slide 47Substitution bias: The CPI uses fixed weights, so it cannot reflect consumers ability to substitute toward goods whose relative prices have fallen.Introduction of n

28、ew goods: The introduction of new goods makes consumers better off and, in effect, increases the real value of the dollar. But it does not reduce the CPI, because the CPI uses fixed weights.Unmeasured changes in quality: Quality improvements increase the value of the dollar, but are often not fully

29、measured. slide 48The Boskin Panels “best estimate”:The CPI overstates the true increase in the cost of living by 1.1% per year.Result: the BLS has refined the way it calculates the CPI to reduce the bias.It is now believed that the CPIs bias is slightly less than 1% per year. slide 49If your grandm

30、other receives Social Security, how is she affected by the CPIs bias?Where does the government get the money to pay COLAs to Social Security recipients?If you pay income taxes and Social Security taxes, how does the CPIs bias affect you?Is the government giving your grandmother too big of a COLA?How

31、 does your grandmothers “basket” differ from the CPIs? slide 50prices of capital goodsincluded in GDP deflator (if produced domestically)excluded from CPIprices of imported consumer goodsincluded in CPIexcluded from GDP deflatorthe basket of goodsCPI: fixedGDP deflator: changes every yearslide 5116

32、14 12 10 8 6 4 2 0 -2Percentagechange194819531958196319681973Year19781983198819931998CPIGDP deflatorslide 52employed working at a paid job unemployed not employed but looking for a job labor force the amount of labor available for producing goods and services; all employed plus unemployed persons no

33、t in the labor force not employed, not looking for work. slide 53unemployment rate percentage of the labor force that is unemployedlabor force participation rate the fraction of the adult population that participates in the labor forceslide 54U.S. adult population by group, April 2002Number employed

34、 = 134.0 millionNumber unemployed = 8.6 millionAdult population = 213.5 millionUse the above data to calculatethe labor forcethe number of people not in the labor forcethe labor force participation ratethe unemployment rate slide 55data: E = 134.0, U = 8.6, POP = 213.5labor forceL = E +U = 134.0 + 8

35、.6 = 142.6not in labor forceNILF = POP L = 213.5 142.6 = 70.9unemployment rateU/L = 8.6/142.6 = 0.06 or 6.0%labor force participation rateL/POP = 142.6/213.5 = 0.668 or 68.8%slide 56Suppose qthe population increases by 1%qthe labor force increases by 3%qthe number of unemployed persons increases by 2%Compute the percentage changes in the labor force participation rate:the unemployment rate:2% 1%slide 57Employed work