slides week1
TRANSCRIPT
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Macroeconomics Slide #1
Dr Nicola Pavoni
Office: DH 225
[email protected]~uctpnpa
B01: Macroeconomics
Macroeconomics
Oliver Blanchard (MIT)
Third (or fourth) Edition, Prentice Hall
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Macroeconomics Slide #2
IntroductionIntroduction--The Issues and
Approach of Macroeconomics
Three time-frames ofmacroanalysis
Short-run
Medium-run
Long-run
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Macroeconomics Slide #3
IntroductionIntroduction
Central Variables ofMacroeconomics
Output, Y Realgross domesticproduct (GDP)
Measures totalincome ofan economy
Unemployment, u
Measures the numberofpeople looking fora job,but whoare without a job
Inflation, The rate ofchange of the generalprice level
The Issues and Approach of Macroeconomics
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Macroeconomics Slide #4
Aggregate OutputAggregate Output
1) Finalgood
2) Value added
3) Income
Defining GDP: Three Approaches
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Macroeconomics Slide #5
Aggregate OutputAggregate Output
Gross Domestic Product (GDP) Y
The value of the finalgoods and services
produced inan economy duringagiven
period
Aggregate Output (national income
and product accounts, or NIPA)
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Macroeconomics Slide #6
Aggregate OutputAggregate Output
Recall
GDP = the value of finalgoods and
services produced
Value is the price of the finalgood
Nominal & Real GDP
Therefore,
GDP = Price x Quantityof finalgoods
produced
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Macroeconomics Slide #7
Aggregate OutputAggregate Output
Real GDP = value of finalgoods inconstant
prices PtYt=Nominal GDPt=(Todays ) =
=PtcarsQt
cars+Ptban.Qt
bananas+
Yt= Real GDPt = (base year ) ==P0carsQt
cars+P0ban.Qt
bananas+
P0= base year (1980 forinstance)
Calculating Real GDP
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Macroeconomics Slide #8
Aggregate OutputAggregate Output
1991 -- 10,000
1992 -- 12,000 (20% increase)
1993 -- 13,000 (8.33% increase)
Real GDP in Units
Production of cars
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Macroeconomics Slide #9
Aggregate OutputAggregate Output
1991 -- 10 x 12,000 = 120,000
1992 -- 12 x 12,000 = 144,000 (20% increase)
1993 -- 13 x 12,000 = 156,000 (8% increase)
Real GDP in 1992 s
Note: Nominal 1992 GDP = Real 1992 GDP
Car Production x 1992 Prices
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Macroeconomics Slide #10
Nominal and RealNominal and Real
U.S. GDP, 1960U.S. GDP, 1960--19981998
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Macroeconomics Slide #11
Aggregate OutputAggregate Output
2) Value Added Approach
The increase in the value ofgoods as a resultof the productionprocess
Value added
= value of production - value of intermediate goods
Defining GDP: Three Approaches
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Macroeconomics Slide #12
Aggregate OutputAggregate Output
Defining GDP
approacha eal eapproachgoo sinal|
chaipro uction
thealonga edvaluetheofum
goodsfinalofvaluetheofum |
Final Goods are purchased by the ultimate user
Intermediate Goods forminputs toother firms
productionprocesses
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Macroeconomics Slide #13
Aggregate OutputAggregate Output
3) GDP from the income side
GDP (income) (indirect taxes)
labor income
capital income
!
Defining GDP
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Macroeconomics Slide #14
The Composition of GDP byThe Composition of GDP byType of IncomeType of Income
Labor income 60/70%
Capital income 20/30%
Indirect taxes 5/10%
In Percent
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Macroeconomics Slide #15
Aggregate OutputAggregate Output
GDP growth inyear t -- rate ofchange in realGDP inyear t
GDP growth = (yt - yt-1)/yt-1
Expansions -- periods ofpositive growth Recessions -- periods ofnegative growth
(2 consecutive quarters)
Technical Notes: For the Course
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Macroeconomics Slide #16
The Other MajorThe Other Major
Macroeconomic VariablesMacroeconomic Variables
num. unemployed (Unemployment Rate ( ) 100labor force (
x!
Uu
L)
)
)(unemployed)(employed)(orceLabor UNL !
The Unemployment Rate
1 0 0lab or fo rce ( )
a r ti c ipa t ion R a tea du lt p o pu la tio n (1 6 )
x!
L
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Macroeconomics Slide #17
1998
)6.2()(131.4
)(6.24.5%
6.2
131.4
UN
U
u
U
N
!!
!
!
The Other MajorThe Other Major
Macroeconomic VariablesMacroeconomic Variables
Counting the Unemployed
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Macroeconomics Slide #18
The Other MajorThe Other Major
Macroeconomic VariablesMacroeconomic Variables
Okuns Law
High output growth -- reducesunemployment
Low output growth -- increases
unemployment
Unemployment and Economic Activity
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Macroeconomics Slide #19
Social Implications of Unemployment
Unemployment rates and durationvary
bypopulationgroups
Certaingroups incura disproportionate
share ofunemployment when
unemployment increases
These are mainlyyoungpeople
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Macroeconomics Slide #20
Change in the U.S. Unemployment RateChange in the U.S. Unemployment Rate
versus U.S. GDP Growth 1960versus U.S. GDP Growth 1960 -- 19981998
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Macroeconomics Slide #21
The Other MajorThe Other Major
Macroeconomic VariablesMacroeconomic Variables
The Inflation Rate,
A sustained rise in the average price level
TwoMeasures of the Price Level
GDP Deflator
Retail Price Index (RPI)
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Macroeconomics Slide #22
The Other MajorThe Other Major
Macroeconomic VariablesMacroeconomic Variables
Average price of finalgoods produced
GDP deflatorinyear t = Pt
nominal! !
t t
t
t t
YP
Y
RealGDP
The GDP Deflator
x!t t t
Y P Y
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Macroeconomics Slide #23
The Other MajorThe Other Major
Macroeconomic VariablesMacroeconomic Variables
Pt is anindex number
P1993 = 102.6 (1992 = 100) Index numbers are used tomeasure rate of
change over time
t
1-t
1-ttP
P
PP(!
! %inflationofRate
The GDP Deflator
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Macroeconomics Slide #24
The Other MajorThe Other Major
Macroeconomic VariablesMacroeconomic Variables
Average prices of goods consumed
1. List of goods consumed by the typical person
2. Calculate the weighted average level of prices
The RPI is not equal to the GDP deflator Some final goods are sold to business, government,
and foreigners
Some consumer goods are imported
The Retail Price Index (RPI)
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Macroeconomics Slide #25
Why do we care about inflation?
Prices and wages donot rise
proportionally
Inflationcreates market distortions due to
Regulation
Taxation
Uncertainty forbusiness investment
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Macroeconomics Slide #26
Change in the U.S. Inflation Rate versusChange in the U.S. Inflation Rate versus
the U.S. Unemployment Rate, 1970the U.S. Unemployment Rate, 1970--19981998
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Macroeconomics Slide #27
The Other MajorThe Other Major
Macroeconomic VariablesMacroeconomic Variables
Low unemployment --inflation rate
increases
High unemployment -- inflation rate
decreases
The Phillips Curve
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Macroeconomics Slide #28
Growth, Unemployment, andGrowth, Unemployment, andInflation in the EU, 1960Inflation in the EU, 1960--20042004
1960-2000 1994-2000 2001-2004
(in percent) (average) (average) (average)
Output growth rate 3.1 2.3 1.5
Unemployment rate 5.8 9.0 7.8
Inflation rate 5.
4 2.
0 2.
3
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