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AP+Macro+ +Introduction+to+Macro+Measurement

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5 views

AP+Macro+ +Introduction+to+Macro+Measurement

Uploaded by

piperbob73
Copyright
© © All Rights Reserved
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Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 23

Introduction to

Macroeconomic
Measurement
• GDP
• Gross Domestic Product
• Inflation
• Price Level and Consumer Price Index (CPI)
• Unemployment
• Business Cycle
Gross Domestic Product
• GDP = Value of all final goods and services
• Those purchased for final use
• Does not include
• Intermediate goods
• Resale for further manufacture
• Used goods
• Financial transactions
• Non-market transactions
• Activity – in or out?
GDP = C+I+G+(X-M)
• Consumption
• Spending by households
• 2/3 of spending
• Investment
• Spending by business
• Factories, equipment, new buildings
• Government
• Military, schools, highways
• Not transfer payments
• Net Exports (X-M)
• Spending by people abroad on U.S. goods and services minus spending by
people in the U.S. on foreign goods and services
Included or not Included in GDP?
For each situation, identify if it is included in
GDP the identify the category C, I, G, or X n
1. $10.00 for movie tickets
2. $5M Increase in defense expenditures
3. $45 for used economics textbook
4. Ford makes new $2M factory
5. $20K Toyota made in Mexico
6. $10K Profit from selling stocks
7. $15K car made in US, sold in Canada
8. $10K Tuition to attend college
9. $120 Social Security payment to Bob
10.Farmer purchases new $100K tractor 6
• C, G, I increase GDP increase
• Decrease; decrease
• X increases GDP increases
• M increases GDP decreases
• Activity – What sector?
Inflation
• Increase in the price level
• The Consumer Price Index (CPI) is a measure of the average price level in the
economy.
• Rate = (change in price/beginning price) X 100
• Deflation
• A decrease in the overall price level.
• Recession of early ‘20s, and 1930s
Causes of Inflatation
• Demand-pull
• Excessive demand
• Deficit spending
• Cost-push
• Rising costs of inputs
• Growth in money supply outpaces GDP
• i.e., “too much money chasing too few goods”
Degrees of Inflation

•Creeping
•1 – 3% per year
•Galloping
•100 – 300 %
•Hyper
•Very rapid increases in prices
GDP and Price Level Changes
• Price Index
• Used to measure changes in price over time
• Allows us to control for inflation
• Created by selecting a base year and a representative “market basket”
Major Price Indices
• Consumer Price Index (CPI)
• Reports changes in prices of 80,000 goods and services
• Producer Price Index (PPI)
• Changes in prices producers sell for in mktplc
• GDP Price Deflator
• Index of avg price of all goods and services
• Used to determine real GDP
Consequences of Inflation
• Changes in spending habits
• Substitution effect
• Rent vs buy
• Heavy speculation
• Investment bubbles
• Increase in savings
Inflation (cont.)
• People on a fixed income (such as retirees) suffer.
• Currency loses buying power
• Interest rates increase.
• Borrowers are helped if their interest rate is fixed; hurt if interest rate
is adjustable.
• Federal government tries to control costs of inflation through
stabilization policies
• Fiscal Policy
• Monetary Policy
Real vs. Current GDP
• Current, AKA Nominal
• Real GDP
– GDP Controlled for inflation
– Converting current into real is used to compare GDP over time
– Focus Economic indicators 18 - GDP
GDP
• Limitations
• No information on composition
• No information on quality of life
Unemployment
Coronaversion
Types of Unemployment
• Frictional • Seasonal
– Between jobs • Roofers; agricultural
• Structural workers
– Change in structure of • Cyclical
industry • Lay-offs
• Technological
– Unskilled workers
replaced by machines
– E.g. e-mail and USPS
Measuring Unemployment
• 16 – 65
• Actively looking for work
• Also look at new claims
• Affected by growth in labor force
• Does not count “discouraged worker”
• Underemployed
• U-6
• Not prisoners, military, or students
Full Employment
• No cyclical unemployment
• Rate indicator depends on who you ask
• 4 – 6%
• Current?
• Number of unemployed divided by the number in the labor force
• Labor force participation rate is the number of people in the labor
force divided by the population
Inflation and Unemployment
• Which can lead to lower real wages
• which impacts consumption
• Inflation can lead to higher resource costs leading to
unemployment and lower wages
• Unemployment can lead to lower consumption

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