Download GDP, inflation and unemployment

1-2 The United States
Figure 1-3 The United States
1-3 The Euro Area
Figure 1-5
The Euro area
1-4 China
Figure 1-6 China
2-1 Aggregate Output
Figure 2-1 Nominal and real U.S. GDP, 1960–2010
2-1 Aggregate Output
Figure 2-2 Growth rate of U.S. GDP, 1960–2010
What is GDP?
• Gross Domestic Product (Duh)
• Output of final goods and service
• Income from the sale of final goods and
services
Y= C+G+I+(EX-IM)
•
•
•
•
•
Y = Output (GDP)
C = Consumption
G= Government Spending
I = Investment Spending
EX-IM = Exports-Imports – Net Exports
(NX)
As of 2014Q3
•
•
•
•
•
Y= 17.60 Trillion
C= 12.00 Trillion
G=3.20 Trillion
I= 2.90 Trillion
NX = -.52 Trillion
– EX =2.37 Trillion
– IM =2.88 Trillion
Consumption
• C = 68% of GDP
• Goods (4.01 Trillion)
– Durable Goods
– Nondurable Goods
• Services (7.99 Trillion)
• As you can see about 45% of our economy
is services
I=Investment Spending
• 16.4% of GDP
• Investment spending is not the same as
“making an investment”
• I is spending on final goods and services by
firms and confusingly: households:
– Fixed Investment
• Nonresidential ($2.24 tril)
– Structures
– Software and Equipment
• Residential ($0.57 tril)
Buying a house means buying the services of the house into the
future (i.e. an investment)
– Inventories
Produced but not sold. Future Sales = Investment
G =Government
• As of 2011Q4 G=18% of GDP
– With Transfers G= 31% of GDP
• We get lazy and thing of G =Federal Gov.
– However G = State, Local and Federal
Government
– State and Local Spending = 11% of GDP
• T = Taxes
• TR = (Net)Transfers (Transfer SpendingTransfer Taxes)
– Social Security, Medicare/Medicaid Insurance,
Foods Stamps, Foreign Aid etc.
Government Budgets
• G+TR>T
0> T-(G+TR)
– Government Deficit
•
•
•
•
•
G+TR<(T)
0< T-(G+TR)
Government Surplus
Government Saving (ignoring TR):
T-G=Sg
Sg = Government Savings
– Sg < 0 (Deficit) or Sg > 0 (Surplus)
EX and IM
• NX = -2.9% of GDP
• Total EX + IM = 32% of GDP
• EX = Goods produced (income earned) but sold
to foreigners. It is output above what is
consumed (C+G+I) in the US
• IM = Goods consumed (C+G+I) in the US but
produced (income earned) by foreigners.
• EX-IM = Trade Balance
• EX >IM (EX-IM >0) Trade Surplus
• EX <IM (EX-IM <0) Trade Deficit
UNEMPLOYMENT
Unemployment
–L=N+U
• L=Labor Force
• N=employment
• U=unemployment
• Unemployment Rate=
𝑈
𝑈
=
𝑁+𝑈 𝐿
• Unemployed has a specific definition:
– Looked for work within the last month.
2-2 The Unemployment Rate
Figure 2-3 U.S. unemployment rate, 1960–2010
Other kinds of not unemployed but
without a job:
• Marginally attached Workers
– Has looked for a job in the last year
– Wants to work, can’t find a job
• Discouraged workers
• Given up looking for work because they feel there are
no job opportunities
• Involuntary Part Time Workers
– Working part time for “economic reasons”
Other Ways of Thinking about
Unemployment
• Employment/Population Ratio.
• U3 = Standard Definition of Unemployment
• U6 Includes Marginally Attached and Part
Time Workers.
• Current Employment Survey
• Duration of Unemployment.
2-3 The Inflation Rate
Figure 2-4 Inflation rate, using the CPI and the GDP
deflator, 1960–2010
1-1 The Crisis
Figure 1-2 Unemployment rates in the United States
and the Euro area, 2000–2012
Inflation
Inflation
• Inflation= Growth in the price level
• Two ways of measuring the price level
– Consumer Price Index (CPI)
– GDP Deflator
• PCE Deflator
GDP Deflator
• 𝐺𝐷𝑃 𝐷𝑒𝑓𝑙𝑎𝑡𝑜𝑟 = 𝑃 =
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃
=
$𝑌
𝑌
– Real GDP: Constant Dollar GDP
• Needs a base year. Holding prices constant factors out
the “noise” of price changes.
• GDP is a measure of OUTPUT (STUFF)
• Rearrange:
– $Y=PY
– Nominal GDP can be “decomposed” into prices
and quantities.
– Nominal GDP growth can be decomposed too
• More later on this
CPI
• CPI Is calculated using two components.
– 1. The Average Urban Consumer (AUC); 87% of
US consumers
• The BLS measures the AUC “consumption basket”
• 7,000 Quarterly Surveys
– 2. Measured Monthly Prices.
• 80,000 Prices of goods an service.
• These two elements get complied into the Consumer
Price Index.
• The AUC’s basket determines the weight of
goods in 200 categories
CPI
•
•
•
•
•
•
•
•
1-32
Food and Beverages: 14.79%
Housing: 41.46%
Apparel: 3.6%
Transportation: 17.31%
Medical Care: 6.63%
Recreation: 6.29%
Education and Com: 6.42%
Other G&S: 3.5%
© 2013 Pearson Education, Inc. All rights reserved.
Core vs Headline CPI
• Headline contains all items in the AUC’s
basket.
• Core CPI factors out highly volatile Food and
Energy Indexes.
1-33
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Some Math Stuff
1-35
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Growth Rates
• We will use growth rates quite a bit in this
class
– GDP growth
– Inflation (growth rate of the price level)
Copyright
© Pearson
2013Education,
Pearson
1-36
© 2013
Inc. All rights reserved.
36
Growth Rates
• Growth Rates:
𝑋𝑡+1 −𝑋𝑡
(x100)=
𝑋𝑡
%ΔX
t is the time period you are interested in.
Almost always in economics we are talking
about annual growth.
1-37
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Properties of Growth rates
• The Growth of Z=XY is easy to get
• It is approximately (if the “g”s are small):
𝑔𝑧 = 𝑔𝑥 +𝑔𝑦
• Similarly Z=X/Y
𝑔𝑧 = 𝑔𝑥 −𝑔𝑦
• Blanchard walks you through why in the
appendix. If you REAAAALLLY want me to
go through it I will.
1-38
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Growth Exercise
• Jan 1, 2013
– Nominal GDP 16502.4
– Real GDP 15538.4
• Jan 1, 2014
– Nominal GDP 17044.0
– Real GDP15831.7
• Find nominal and real GDP growth for 2013.
Also find the inflation rate (according to the
GDP Deflator)
1-39
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Figure A2-2 (a) U.S. GDP since 1890 (using a linear scale) (b)
U.S. GDP since 1890 (using a logarithmic scale)
1-40
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To get this result:
(1 + 𝑥 …
𝑛 (1−𝑥)
𝑥 )
(1−𝑥)
1. Multiply the geometric series by the numerator
2. Simplify
3. Divide by the denominator
If x < 1 then 𝑥 𝑛+1 → 0
1-41
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