Download Consumption - Westminster College

Macroeconomics:
Study of the determinants of
Output, Employment and
the Price Level
Put less formally, macroeconomics is about
understanding the causes of prosperity and
poverty.
National Income Accounting
• Purpose: measure the performance of the
economy for purposes of public policy
• Created in the aftermath of the Great
Depression
• GDP: most important measure of the
economy’s performance
Gross Domestic Product
• GDP is the most important measure of
economic output
• GDP is defined as the total value of all final
goods and services produced by the
domestic economy in one year
Measuring GDP
Expenditure Approach:
GDP = C + I + G + X M
Income Approach:
GDP = Wages + Profits +
Rents + Interest +
Indirect Business
Taxes
Types of Expenditures
• Consumption:
– durable goods
– nondurable goods
– services
• Investment
– inventories
– producer goods
– new construction
• Government
• Net Exports
– exports
– imports
Consumption as a Percentage of
GDP
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1930
35
40
45
50
55
60
65
70
75
80
85
90
95
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003: I
Consumption as a
Percentage of GDP
Total
Sum of C/Y
0.7
0.65
0.6
Total
0.55
0.5
Year or quarter
Investment as a Percentage of
GDP
20%
15%
10%
5%
0%
1930
35
40
45
50
55
60
65
70
75
80
85
90
95
0.25
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003: I
Investment as a
Percentage of GDP
Total
Sum of I/Y
0.2
0.15
Total
0.1
0.05
0
Year or quarter
Government Spending as
a Percentage of GDP
Total
50
Sum of Outlays
45
40
35
30
25
Total
20
15
10
5
0
1934
1939
1944
1949
1954
1959
1964
1969
1974
Fiscal year or period
1979
1984
1989
1994
1999
2004 1
Government Expenditures
Government Expenditures as a Portion of the Budget
100%
Other
80%
Social Security
60%
Income Security
International
Affiars
40%
Medicare
Health
Defense
20%
Net Interest
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
1945
1940
0%
Government Revenues
100%
80%
60%
Other
Social
Individual
Corporation
40%
20%
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
1945
1940
0%
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Exports and Imports
as a Percentage of GDP
Drop Page Fields Here
0.14
0.12
0.1
0.08
Data
Sum of X/GDP
0.06
Sum of m/GDP
0.04
0.02
0
Year or quarter
Net International
Investment Position
Total
0
Sum of 1995 Sum of 1994 Sum of 1996 Sum of 1997 Sum of 1998 Sum of 1999 Sum of 2000 Sum of 2001 Sum of 2002
p
With direct investment at market value
-500
-1000
-1500
Total
-2000
-2500
-3000
Type of investment Data
Types of Income
•
•
•
•
•
Compensation
Corporate Profits
Proprietor Profits
Interest
Rents
Employee Compensation as a
Percentage of National Income
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
30
35
40
45
50
55
60
65
Years
70
75
80
85
90
95
Corporate Profits,
Proprietorships, and Interest as a
Percentage of National Income
25%
20%
Pr opr i et or shi ps
15%
10%
Copor at e Pr of i t s
5%
I nt er est
0%
30
-5%
35
40
45
50
55
60
65
70
75
80
85
90
95
GDP over time
Nominal and Real GDP
8,000.0
Nominal GDP
7,000.0
Real GDP
5,000.0
4,000.0
3,000.0
2,000.0
1,000.0
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
1965
1963
1961
0.0
1959
Billions of Dollars
6,000.0
90
85
80
75
70
65
60
55
50
45
40
35
$6,000.00
$5,000.00
$4,000.00
$3,000.00
$2,000.00
$1,000.00
$0.00
1930
Billions of dollars
Real GDP
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002:
Percentage Change in GDP: The
Business Cycle
Drop Page Fields Here
Total
8.00%
Business cycle
6.00%
4.00%
2.00%
Drop Series Fields Here
Total
0.00%
-2.00%
-4.00%
Year or quarter
Employment
• Unemployment rate--unemployed/labor
force
• unemployed
– between 16 and 65
– involuntarily unemployed
– noninstitutionalized
• labor force--employed + unemployed
Unemployment Rate
Unemployment Rate
30%
20%
10%
0%
1930 35 40 45 50 55 60 65 70 75 80 85 90 95
Vi et namOi l Fed
Gr eat WWI I Kor ean
Embar goI nduced
Depr essi on War
Recessi on
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Drop Page Fields Here
12
10
8
Data
6
Sum of All civilian workers
Sum of Males
Sum of Females
4
2
0
Year or month
Labor Force Participation Rate
Number employed/Working age population
68.0
66.0
64.0
62.0
60.0
58.0
56.0
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
19
70
19
68
19
66
19
64
19
62
19
60
19
58
19
56
19
19
54
54.0
Types of Unemployment
•
•
•
•
Frictional unemployment
structural unemployment
seasonal unemployment
cyclical unemployment
Costs and Benefits of
Unemployment
• Costs
– Costs of supporting the
unemployed
– loss of output
– crime, suicide, etc.
– psychological costs
• Benefits (dubious)
– disciplines the labor
force
– checks wage increases
(Marx’s point)
– reduces inflationary
pressures
The Price Level
• Price level--average level of prices of a
market basket of goods
• CPI--measures changes in prices of
consumer goods
• PPI-- measures changes in prices of
producer goods
• GDP Price Deflator--measures changes in
prices of goods making up GDP
Price Level
120
100
80
60
40
20
0
1930
40
50
60
70
80
90
Inflation (Percentage change in the Price Level)
Inflation
Rate
40%
20%
0%
31
36
41
46
51
56
61
66
71
76
81
86
91
96
-20%
Years
Costs and Benefits of Inflation
• Costs
– hurts creditors
– hurts those on fixed
incomes
– increases uncertainty
– costs of marking up
prices
• Benefits
– alleviates the burden of
debt
– raises profits, and
therefore may help the
economy