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Seminar in Economics
Econ. 470
Chapter 1:
Introduction to Basic Indicators in Economics
I. Introduction to Data Collection
 The collection and presentation of economic data differ in
several respects.
 Most economic data are revised, often many times, and
most are also adjusted for seasonal variation.
 Economic reports usually tend to focus on sequential
changes.
WHY Data Revisions Occur?
- With rare exceptions, economic data are revised
extensively.
- Data are initially generated from samples, sometimes with
incomplete information for the period in question .
HOW!!
- The need for revisions is to accommodate evolution in the
structure of the economy . HOW!!
- The need for revisions is to facilitate international
comparisons. HOW!!
WHY Data are Seasonal Adjustment?
- Seasonal adjustment strives to eliminate changes in the
data that occur regularly at certain times of the year.
- Elimination of these seasonal variations makes it easier to
spot trends and fluctuations. HOW!!
- It also permits a more meaningful examination of
sequential changes from week to week, month to month,
or quarter to quarter. HOW!!
- The actual process of seasonal adjustment is complicated.
HOW!!
II. Impact on Financial Asset Prices
There are three criteria that determine “ which economic
data tend to have the greatest effects on financial
markets:
1. Relevance to Economic Growth
Reports that provide information about large segments
of the economy, generally get the most market attention.
2. Timeliness of the Information
Financial market participants seek the latest news, and
therefore assign more importance to information taken
from the recent past, rather than belated reports or
updates covering earlier months.
3. Reliability of the Data
Even when economic data are released, the data
reliability is concerned .
III. Understanding National Output and
Income Indicators
 Gross Domestic Product (GDP):
- Measures the total value of goods and services
produced by people, businesses , governments, and
property located in the country.
- GDP is the broadest available measure of US
economic activity.
- There are two ways to look at GDP: Spending
approach and Income approach.
- GDP is computed both in nominal (current-dollar)
and real (inflation-adjusted) terms.
- Nominal GDP is the market value of all final goods
and services produced in a year.
- Nominal GDP is calculated using the current prices
prevailing when the output was produced (P x Q), but
real GDP is a figure that has been adjusted for price
level changes.
- GDP includes the following main factors:
(1) personal consumption expenditure,
Includes durable goods , nondurable goods and services.
(2) business investment in structures, equipment and
software,
 All final purchases of machinery, equipment, and tools by
businesses.
 All construction (including residential).
(3) government consumption and investment,
Includes spending by all levels of government
(4) net exports ( exports – imports)
Net exports is the difference: and can be either a positive or
negative number depending on which is the larger amount.
Converting Nominal to Real
Problem: valid comparisons cannot be made with
nominal GDP alone, since both prices and quantities
are subject to change.
Solution: making an adjustment process by converting
the nominal to real.
One method: first determine a price index, and then
adjust the nominal GDP figures by dividing by the
price index (in hundredths).
GDP Price Index

Use price index to determine real GDP
Real
=
Price Index (in hundredths)
GDP
Price
Index
Nominal GDP
Price of Market Basket in a specific
=
x 100
Price of Same Basket n Base Year
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GDP Price Index
Calculating Real GDP (Base Year = 2000)
(5)
Adjusted,
or
Real,
GDP
Year
(1)
Units of
Output
(2)
Price of
a product
Per Unit
(3)
Price Index
(Year 2000=
100)
(4)
Unadjusted,
or Nominal,
GDP
(1) X (2)
2000
5
$10
100
$ 50
$50
2001
7
20
200
140
70
2002
8
25
250
200
80
2003
10
30
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2004
11
28
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