Download Example: Calculate the GDP of an economy with three firms a steel

MACROECONOMICS
Guerkan Birer
WS-2011-12
University of Vienna Department of Economics
MACROECONOMICS
Macroeconomics deals with aggregate variables, such as
aggregate consumption, the inflation rate, the unemployment
rate, the growth rate of an economy,...
Macroeconomics tries to answer such questions:
•What are the effects of fiscal and monetary policy?
•Can the unemployment rate be reduced if a higher inflation is
permitted?
•Why are some countries so poor and others so rich?
The Foundation of Macroeconomics
Macroeconomics was created as an academic discipline in
response to the Great Depression (1929)
WHAT HAPPENED DURING THE GREAT DERPRESSION?
1. Stock Market Crisis
• People speculated in the stock market during 1920 ‘s
• In 1929 news about fraud led to expectations that stock
prices will fall
• Investors wanted to sell their stocks which in turn resulted in
more decline of the stock prices and no one wanted to buy
stock and panic spread all over the world.
2.
Private Consumption
•Real Consumption declined by more than 23% from 1929 to
1933
•Only a part of this decline can be due to stock market crisis
•Deflation led to increases in the real value of liabilities and
postponed consumption
3.
Investment
•Gross investment fell dramatically during the great depression.
•Net investment was even negative (depreciated capital was not
fully replaced
•Deflation led to higher real interest rates which made investing
more expensive
Why did Great Depression Happen?
IS-LM model gives us a tool to analyze both views!
Does history really repeat itself?
PART 1 National Accounting
•Three definitions of GDP
•Nominal vs. Real GDP
•GDP deflator
•CPI
•Inflation rate
•GNI, NDP, NNI, DGNI, NDI, NDP calculated at factor
costs, NNI calculated at factor costs…
•Balance of Payments
•CA and KA
Why do we study National Accounting?
National Accounting deals with identities, i.e. the relationships
outlined here hold by definition
When analyzing an economy's "performance" it is important to
define precisely what we are talking about
National Accounting provides a uniform method of assessing
economic performance and thus allows cross-country
comparisons
UN system of National Accounts developed in 1993 (SNA93)
European System of Accounts (ESA95) developed by Eurostat
as a standard for EU members
Before we start make a distinction between stocks
and flows of economics
A variable is called a stock variable if it is measured
at a particular time. For example the wealth of a
person as of 1st of January 2010.
A variable is called a flow variable if it is measured for
a period of time. For example the GDP of Austria in
year 2010 or the monthly unemployment rate, or
inflation rate are all flow variables.
Example: Calculate the GDP of an economy with three firms a steel
producer, a car producer and a farmer using the information below.
Use all the three approaches that we have learned .
Steel Producer
Car Producer
Farmer
Sold Quantity
8 tons
12 cars
30 tons of
apples
Primary Price
$ 10,000/ton
$ 20,000
$ 1,000/ton
Wages
$ 50,000
$ 80,000
$ 20 000
Intermediate
goods used
none
8 ton steel
none
Profits
$30,000
$ 80,000
$10,000
Example Continues ….
Suppose now that government collects VAT from the three firms with the
percentages below. Calculate the GDP once more now with taxes !!!
Steel Producer
Car Producer
Farmer
Sold Quantity
8 tons
12 cars
30 tons of
apples
Primary Price
$ 10,000/ton
$ 20,000
$ 1,000/ton
Wages
$ 50,000
$ 80,000
$ 20 000
Intermediate
goods used
none
8 ton steel
none
Profits
$30,000
$80,000
$10,000
VAT
10%
10%
20%
Example: Given the sales and prices of the final goods A, B, C
produced for the years 2008, 2009 and 2010 calculate the nominal and
real GDP for 2008, 2009 and 20010.
YEAR
SALES SALES SALES
OF A
OF B
OF C
PRICE
OF A
PRICE
OF B
PRICE
OF C
2008
1000
500
800
$4
$5
$3
2009
1200
400
600
$3
$5
$5
2010
1100
500
900
$5
$6
$6
Example: Calculate the GDP Deflator for the years 2008, 2009 and
2010.
YEAR
SALES SALES SALES
OF A
OF B
OF C
PRICE
OF A
PRICE
OF B
PRICE
OF C
2008
1000
500
800
$4
$5
$3
2009
1200
400
600
$3
$5
$5
2010
1100
500
900
$5
$6
$6
Example: Calculate the CPI for the years 2008, 2009 and 2010 taking 2008
as a base year.
YEAR
SALES SALES SALES
OF A
OF B
OF C
PRICE
OF A
PRICE
OF B
PRICE
OF C
2008
1000
500
800
$4
$5
$3
2009
1200
400
600
$3
$5
$5
2010
1100
500
900
$5
$6
$6
Example: Calculate the Inflation rate using the GDP deflator and CPI for the
years 2009 and 2010 ?
YEAR
SALES SALES SALES
OF A
OF B
OF C
PRICE
OF A
PRICE
OF B
PRICE
OF C
2008
1000
500
800
$4
$5
$3
2009
1200
400
600
$3
$5
$5
2010
1100
500
900
$5
$6
$6
Now assume that A is imported. How would the inflation rate change using GDP
deflator? using CPI?
Assume that B is exported. How would the inflation rate change using GDP
deflator? using CPI?
IMPORTANT :
BoPI = Balance of Primary Incomes = The primary incomes earned by the
residence of the country –primary incomes paid to the non residence
BoPI= - (BoPI to the rest of the world)
BoCT = Balance of Current Transfers= Current transfers received – Current
transfers paid
BoCT= - (BoCT to the rest of the rest of the world)
•A country with a positive CA balance is a saving country
•A country with a negative CA balance is a borrowing country