Download Macroeconomics: Introduction

Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Macroeconomics: Introduction
Alan G. Isaac
American University
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Macroeconomic Inquiries
Macroeconomic Modeling
Preliminaries
These lecture slides indicate the talking points covered in class. They
are not a substitute for the lectures.
I will appreciate learning of any typos and/or errors.
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Macroeconomic Inquiries
Macroeconomic Modeling
Macroeconomics vs. Microeconomics
macroeconomics economy-wide variables (aggregates)
microeconomics individual markets
microfoundations of macro underlying behavior of indviduals
macrofoundations of micro institutional and environmental setting
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Macroeconomic Inquiries
Macroeconomic Modeling
Macroeconomic Inquiries
All macro textbooks address the causes of
growth
business cycles
inflation
We hope that understanding these can help us implement better
policies---policies that can improve human well-being by
promoting growth,
moderating business cycles,
constraining inflation.
Question:
Do you think there are other major macroeconomic inquiries?
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Macroeconomic Inquiries
Macroeconomic Modeling
Other Inquiries
Might involuntary unemployment deserve to be listed separately
from business cycles?
Might we be interested in the causes of the distribution of income
and wealth?
What role should environmental constraints play in macro policy
planning?
Question:
What role does ideology play in determining which questions we find
interesting, or are even willing to discuss?
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Macroeconomic Inquiries
Macroeconomic Modeling
Background of the Class
Question:
What have you learned to view as determinants of inflation,
unemployment, business cycles, growth, and the distribution of income
and wealth?
Question:
Do you think government policy can influence inflation, unemployment,
business cycles, growth, and the distribution of income and wealth?
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Macroeconomic Inquiries
Macroeconomic Modeling
Course Approach
In this course, we try to answer such questions by collecting evidence
on the relationships between macroeconomic variables.
macroeconomic (aggregative) variables measurable aggregate
quantities such as GDP or unemployment that we
attempt to relate to macroeconomic concepts.
When then build a model in an attempt to explain our observations.
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Macroeconomic Inquiries
Macroeconomic Modeling
Investigative Strategy
ask a macroeconomic question (“why are we richer today than a
century ago”)
document stylized facts relevant to the question
develop a simple model that incorporates certain stylized facts
check predictions of model against other stylized facts
use novel predictions of models to search for new facts
revise model
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Macroeconomic Inquiries
Macroeconomic Modeling
The Structure of Economic Models
Types of Varaibles
Endogenous
Exogenous
Parameters (like exogs but less “variable”)
Types of Equations
Identities
Behavioral
Technological
Equilibrium
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Macroeconomic Inquiries
Macroeconomic Modeling
The Structure of Economic Models
Source: Jones (2011)
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Macroeconomic Inquiries
Macroeconomic Modeling
The Use of Economic Models
Models can be used to explore counterfactual scenarios and to predict
the effects of policy changes.
Comparative statics: how do the final values of the endogenous
variables respond to the exogenous variables?
Comparative dynamics: how does the path of the endogenous
variables respond to the path of the exogenous
variables?
The predictions of economic models are usually qualitative.
A truly successful model makes quantitative predictions as well. (Very
hard!)
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Three Views of Growth
Real GDP: http://research.stlouisfed.org/fred2/
graph/?chart_type=line&width=
800&height=480&preserve_ratio=
true&id=GDPCA
Logarithm of Real GDP:
http://research.stlouisfed.org/fred2/
graph/?chart_type=line&width=
800&height=480&preserve_ratio=
true&id=GDPCA&transformation=log
Annual Percentage Change in Real GDP:\
http://research.stlouisfed.org/fred2/
graph/?chart_type=line&width=
800&height=480&preserve_ratio=
true&id=GDPCA&transformation=pc1
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Real GDP
Source: http://research.stlouisfed.org/fred2
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Population Growth: Linear Scale vs. Ratio Scale
It is usually more informative to display series that grow exponentially
with a ratio scale rather than a linear scale.
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Real GDP (Ratio Scale)
Source: http://research.stlouisfed.org/fred2
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Real GDP (Ratio Scale)
Source: ERP 2011, Fig 3-1
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Real GDP per capita (US): Linear Scale
Most real income growth has been extremely recent. (But watch out:
this is a linear scale, not a ratio scale.)
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Trends and Deviations
When we look at the level of real GDP over time, out attention is drawn
to an apparent long-run trend.
From this perspective, short-run fluctuations are swamped by long-run
growth.
potential output flexible trend
cost of recession 1982: 5% of potential output ($1500 per family)
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Real GDP per capita (US): Ratio Scale
Figure: Real GDP per capita (US): Ratio Scale
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
GDP, GDP p.c., and Population (US)
Figure: GDP, GDP p.c., and Population (US)
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
AR vs. US: Real GDP p.c. (Ratio Scale)
AR
US
104
103
1850
1900
1950
2000
Data Source: http://www.ggdc.net/maddison/
Units: 1990 Dollars (PPP)Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Real GDP per capita (7 countries)
Figure: Real GDP per capita (7 countries)
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Real GDP p.c.: Levels (2000) and Growth Rates
(1960--2000)
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
World Income Distribution
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Annual Percentage Change of Real GDP
Figure: Annual Percentage Change of Real GDP
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Great Recession
Source: ERP 2011 Fig 2-1
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
US Unemployment Rate
Source: http://research.stlouisfed.org/fred2/
series/UNRATE?cid=12
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Unemployment Questions
What caused the Great Depression, with peak unemployment of
25% in the US?
Until 1980, Europe had lower unemployment than the US! Why
the change?
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Unemployment Since 1960: US, Europe, and Japan
Figure: Unemployment Rates since 1960: US, Europe, and Japan
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Recent Unemployment Comparisons
Source: http://www.bls.gov/fls/intl_unemployment_
rates_monthly.htm
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Recent Unemployment Comparisons
Source: http://www.bls.gov/fls/intl_unemployment_
rates_monthly.htm Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
US Inflation
Source: http:
//research.stlouisfed.org/fred2/graph/?chart_
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Inflation Rates since 1960
Figure: Inflation Rates Since 1960: US, Europe, and Japan
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Inflation Questions
What are the causes of inflation?
How do monetary and fiscal policy contribute to inflation?
Why has rich-country inflation been falling since the early 1980s?
Why do some countries experience hyperinflation?
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
US Income Shares (by Quintile)
Figure: Income Shares (by Quintile)
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Tax Rates
Source: ERP (2010, Figure 5.7)
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Income Mobility
Figure: Income Shares (by Quintile)
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Notable Crisis Events
2007
July: 2 Bear Stearns hedge funds collapse (subprime related
losses)
Sep: run on Northern Rock (British Bank)
Sep 18: first fed funds rate cut
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Notable Crisis Events ...
2008
Feb: nationalization of Northern Rock
Mar 16: Bear Stearns acquired by JP Morgan
Jul 11: Indymac fails
Sep 15: Lehman Brothers files for Banruptcy
Sep 16: Reserve Primary Fund “breaks the buck”; run on money
market funds
Sep 19: US Treasury offers insurance to money market funds
Sep: GSE conservatorship; Merril Lynch acquire, Washington
Mutual acquired
Jan 2007--Sep 2009: US and European Banks write down $1T; more
than 2/3 is loans. (IMF expects total losses will approach $2.5T.)
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Spread over 10-Year Treasury Yields
Figure: Spread over 10-Year Treasury Yields
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Interest Rate Questions
Why are interest rates important to the macroeconomy?
What determines interest rates?
How can monetary policy affect interest ratest?
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Housing Prices
Source: ERP 2010, Fig 1-1
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Stock Prices
Source: ERP 2010, Fig 2-6
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Some policy responses
2008-09-07: Fannie Mae and Freddie Mac placed in conservatorship
2008-09-16: Fed extends $85B line of credit to AIG
2008-09-19: Treasury announces temporary guarantee progrm for
money market mutual funds
2008-10-03: Congress passes and Bush signs Emergency Economic
Stabilization Act of 2008 (EESA), including up to $700B
for the Troubles Asset Relief Program (TARP). The initial
TARP tranche of $350B used to purchase preferred
equity shares in financial institutions.
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Some policy responses ...
2008-12 -- 2009-06 Bush extends $17.4B through Auto Industry
Financing Program and another $7.5B to GMAC and
Chrysler Financial. Obama provides almost twice that
as GM and Chrysler go through bankruptcy (to promote
“orderly restructuring”.
2009-02-17: Obama signs American Recovery and Reinvestment Act
of 2009 (ARRA), containing $787B in tax cuts and
spending increases, making it the largest US fiscal
stimulus (about 2% of GDP in 2009 and 2.25% in 2010).
2009-06: Car Allowance Rebate System (CARS)
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Monetary Stimulus
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Discretionary Added Fiscal Stimulus
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
US Fiscal and Current Account Deficits
Budget deficits and trade deficits may affect future living standards.
Alan G. Isaac
Macroeconomics:
Introduction
Figure: US Fiscal
and Current
Account
Deficits
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
US Exchange Rate
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Net International Investment Position
NIIP
not the same as wealth!
A rise in the value of our stock market raises our wealth but
emph{reduces} our NIIP (because foreign residents hold US
stock).
2009 US net equity postion: $3T
2009 US net debt postion: -$5T
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Composition of Assets and Liabilities (US v. RoW)
Figure: Composition of Assets and Liabilities (US v. RoW)
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Growth
Unemployment
Inflation
Inequality
Financial Markets
Open Economy
Reversal of Fortune
Capital gains are no longer offsetting our current account deficit.
Alan G.Reversal
Isaac
Macroeconomics:
Figure:
of FortuneIntroduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Section 1
National Income Accounting
Background
One reads with dismay of Presidents Hoover and then
Roosevelt designing policies to combat the Great
Depression of the 1930s on the basis of such sketchy data
as stock price indices, freight car loadings, and incomplete
indices of industrial production. The fact was that
comprehensive measures of national income and output did
not exist at the time. The Depression, and with it the growing
role of government in the economy, emphasized the need for
such measures and led to the development of a
comprehensive set of national income accounts.
[froyen-2005-macrotp], as quoted in
[landefeld.seskin.fraumeni-2008-jep]
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Section 1
National Income Accounting
Background ...
Prior to the Great Depression, we had no systematic evaluation of
aggregate output.
The nation was in the midst of the Great Depression, but policymakers
had no comprehensive picture of what was happening to the economy.
In response, Simon Kuznets and his colleagues in the 1930s gave us
our first official measurements [kuznets-1934-gpo].
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Section 1
National Income Accounting
Stocks and Flows
Stock: measured at a point in time, does not need to refer to a period
of time
Flow: measured over a period of time
Examples: wealth vs. saving, debt vs. deficits
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Section 1
National Income Accounting
Measuring Aggregate Production
GDP: market value of all final goods and services produced by
domestic residents in a given year.
We can look directly at expenditures on final goods and services
(expenditure approach), or we can equivalently look at payments to
the factors of production (income approach).
Households are the owners of the factors of production.
Firms produce goods and use their revenues to pay for the
factors of production.
For simplicity, we aggregate the payments to factors into two
categories: labor income (“wages”) and rent (“profits”).
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Section 1
National Income Accounting
Components of GDP
Basic NIPA identity: Y = C + I + G + (IM − EX )
100
80
Percent of GDP (2009)
71
60
40
21
20
11
-3
0
C
Data Source:
I
Alan G. Isaac
G
Macroeconomics: Introduction
NX
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Section 1
National Income Accounting
US Consumption/GDP
Source: ERP 2010, Fig 1-3
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Section 1
National Income Accounting
Composition of US GDP
Figure: Composition of US GDP
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Section 1
National Income Accounting
Composition of US GDP
WWII led to a dramatic increase in G.
Note that C continues on trend, although I collapses.
Data Source: FRED
103
102
Y
C
I
G
101
100
0.8
0.6
0.2
C/Y
I/Y
G/Y
NX/Y
0.0
1930
1935
0.4
1940
1945
Alan G. Isaac
1950
1955
1960
1965
1970
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Section 1
National Income Accounting
Composition of US GDP ...
Source: Jones 2008
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Section 1
National Income Accounting
Labor’s Share of GDP
Labor’s share of GDP is roughly constant at around 2/3.
Source: Jones 2008
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Section 1
National Income Accounting
Absorption
We call our aggregate spending “absorption”:
A = C +I +G
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Section 1
National Income Accounting
Current Account Determination (view 1):
Y − C − I − G = (IM − EX )
Y − A = (IM − EX )
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Section 1
National Income Accounting
Decomposing G
Break up government expenditure:
G = CG + IG
What is government investment (e.g., in basic research)?
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Section 1
National Income Accounting
Revised identity:
Y = C + I + G + (IM − EX )
= C + I + C G + I G + (IM − EX )
= C NAT + I NAT + (IM − EX )
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Section 1
National Income Accounting
Current Account Determination (view 2):
Y − C NAT − I NAT = (IM − EX )
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Section 1
National Income Accounting
Current Account Determination (view 3):
S NAT − I NAT = (IM − EX )
Alan G. Isaac
Macroeconomics: Introduction
Macroeconomics: Questions and Methods
A First Look at Macro Data
Measuring the Macroeconomy
Section 1
National Income Accounting
References
[froyen-2005-macrotp] Froyen, Richard T. (2005) Macroeconomics:
Theories and Policies. New Jersey: Prentice Hall.
[kuznets-1934-gpo] Kuznets, Simon. (1934) National Income
1929--1932. Washington, DC: U.S. Government Printing Office.
[bls-2005-flsforc] of Labor Statistics, Bureau. 2005. Comparative
Civilian Labor Force Statistics, 10 Countries, 1960-2004.
[landefeld.seskin.fraumeni-2008-jep] Landefeld, J Steven, Eugene P
Seskin, and Barbara M Fraumeni. 2008. Taking the Pulse of the
Economy: Measuring GDP. Journal of Economic Perspectives 22,
193--216.
Alan G. Isaac
Macroeconomics: Introduction