the data of macroeconomics slides.pdf

8/14/2019 The Data of Macroeconomics slides.pdf

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MacroeconomicsMacroeconomics

MACROECONOMICS

N. GregoryN. Gregory MankiwMankiw

MacroeconomicsProf. Rudra Sensarma

Indian Institute of Management Kozhikode

© 2013 Worth Publishers, all rights reserved

PowerPoint ® Slides by Ron Cronovich

. .



Learning objectives & outcomes

…the meaning and measurement of the

• measuring economic

activity

using:

gross

• measuring inflation

using:

the

GDP

deflator,

e w o esa e pr ce n ex e

consumer price index (CPI)

• the unemployment

rate

2



•

has data.

Insensibly

one

begins

to

twist

facts

, .



• Gross Domestic Product GDP is the most im ortant

measure of how the economy is performing; we get itfrom:

• National Accounts Statistics produced by the Central

Statistics Office of the Ministr of Statistics &

Programme Implementation (http://mospi.nic.in)

• GDP is a measure of aggregate output =P1xQ1+P2xQ2+P3xQ3+…..



10

12

6

8

0

2

4

‐4

‐2

‐6

GDP GROWTH GDP GROWTH TREND _ _ _

Note: This

plots

the

growth

rate

of

GDP

i.e.

percentage

change

over

previous

year



GDP: Production and IncomeThere are three ways of defining GDP:

1. GDP is the value of the final oods and services produced in the economy, during a given period.

A final good is destined for final consumption.

.

During a given period = GDP is a flow and not a stock variable.

Revenue 100 200

Wages 80 70

Other expense 0

100

(steel

purchases)

Profit 20 30

‐

(Note: Car is final good while

steel is

intermediate

good)Note:

do

not

double

count;do not include sale of second hand goods



There are three ways of defining GDP:

2. GDP is

the

sum

of

value

added

in

the

economy

during

a given period.

’

value of the intermediate goods it uses in production.

Revenue 100 200

Wages 80 70

Other expense 0

100

(steel

purchases)

Profit 20 30

‐

(note:

V.A.1

is

100

+

V.A.2

is

100)



There are three ways of defining GDP:

3. GDP is the sum of the incomes in the economy during a given period.

Steel company Car

company

Revenue 100 200

Wages 80 70

Other expense 0

100

(steel

purchases)

Profit 20 30

What is the GDP of this two‐firm economy? 200

(note: 80+20

+

70+30)



GDP can be measured in three different but

• Production side

Value of final goods & services

Sum of value added

• Income side

Sum of incomes



A li ti n f Pr ti n m th in measuring India’s GDP

• Sum

of

value

added in industry, Sector 1950-51 1990-91 2012-13

Agri & allied

agriculture and

service sectors

. . .

Industry

11.54 1112.39 16691.14

• xamp e:

(All figures in Rs. billion)

erv ces36.04 2645.90 61470.64

GDP fc100.36 5318.13 94610.13

Net IDT3.65 543.99 5596.07

GDP mp. . .



ares n tota output c

60

40 Agri & allied

Industry

20

Services

0

10

1950‐51 1990‐91 2012‐13



GDP vs. GNP• Gross domestic product (GDP):

Total income earned by domestically‐located

ac ors o pro uc on, regar ess o na ona y

• Gross national product (GNP):Total income earned by the nation’s factors of

production, regardless

of

where

located

GNP – GDP = factor income from abroad

minus factor income to abroad

• Examples of factor income: wages, profits, ,



NOW YOU TRY

want to

be

bigger,

Why?

13



GNP vs. GDP in select countries, 2010

Country GNP GDP – of GDP)

Ban ladesh 109 695 100 357 9.3

Japan 5,601,557 5,458,837 2.6

, , , , .

United States 14,635,600 14,586,736 0.3

, , , , ‐ .

Canada 1,549,652 1,577,040 ‐1.7

reece , , ‐

.

Iraq 77,842 82,150 ‐5.2

Ireland 171,260 206,612 ‐17.1

GNP and GDP in millions of current U.S. dollars



Limitations of traditional methods of output measurement

• Problems: – Informal economy (black markets, household work) – Ignores quality of life (happiness, pollution) – Low fre uenc of the data: GDP is uarterl

• Solutions: –

– Gross National Happiness, Green GDP; Human

Development Index:

• Education (years of schooling)• Standard of living (National income per capita measured in PPP)

–



•

services produced.

…..

• Nominal GDP measures

these

values

using

current pr ces.

• Real GDP measure these values using the

prices in

a base

year

(constant prices).



NOW YOU TRY

Year

Quantity

of Cars

Price

of cars NominalGDP

ea

(in 2004-05prices)

- ,

2004-05 12 24,000

- ,

. Compute real GDP in each year using 2004‐05 as the

17

ase year.



NOW YOU TRY

nominal GDP multiply P & Q from same year

Year Quantityof Cars

Priceof cars

NominalGDP

(in 2004-05prices)

- ,

2004-05 12 24,000

2005-06 13 26,000

,

288,000

338,000

Year Quantity Price Nominal

Real GDP

in 2004-05

real GDP multiply each year’s Q by 2004‐05’s P

of Cars of cars GDP prices)

2003-04 10 20,000 200,000

2004-05 12 24,000 288,000

240,000

288,000

18

2005-06 13 26,000 338,000 312,000



•

– changes in

prices

–

• Changes

in

real

GDP

can

only

be

due

to

c anges n quan es, ecause rea s

constructed using constant base‐year prices.



Nominal and

Real

GDP

1951‐2013

120000.00

s )

80000.00

100000.00

(

b i l l i o

n

40000.00

60000.00 Nominal GDP

Real GDP

(in

2004

‐05

0.00

20000.00

prices

1 9 5 0

‐ 5 1

1 9 5 4

‐ 5 5

1 9 5 8

‐ 5 9

1 9 6 2

‐ 6 3

1 9 6 6

‐ 6 7

1 9 7 0

‐ 7 1

1 9 7 4

‐ 7 5

1 9 7 8

‐ 7 9

1 9 8 2

‐ 8 3

1 9 8 6

‐ 8 7

1 9 9 0

‐ 9 1

1 9 9 4

‐ 9 5

1 9 9 8

‐ 9 9

2 0 0 2

‐ 0 3

2 0 0 6

‐ 0 7

2 0 1 0

‐ 1 1



•

overall level

of

prices

Definition:

GDP deflator = 100

Real GDP

• Therefore, the percentage change in GDP



NOW YOU TRY

Nominal GDP Inflation

GDP

ea

deflator rate

2010 46 200 46 200 n.a.

2011 51,400 50,000

2012 58,300 52,000

Use GDP deflator to compute the inflation rate

from 2010 to 2011 and from 2011 to 2012.

22



NOW YOU TRY

Nominal GDP Inflation

GDP

ea

deflator rate

2010 46 200 46 200 100.0 n.a.

2011 51,400 50,000 102.8 2.8%

2012 58,300 52,000 112.1 9.1%

Use GDP deflator to compute the inflation rate

from 2010 to 2011 and from 2011 to 2012.

23



• ,

Inflation rate

from:

rate of Real GDP • Can you say w y



Two arithmetic tricks for wor ng w percen age c anges

1. For an variables X and Y

percentage change in (X Y )

+ percentage change in Y

EX: If your sales (Q) rise 5%

then your revenue (P*Q) rises

.



Two arithmetic tricks for wor ng w percen age c anges

2. ercenta e chan e in X/Y

percentage change in X

: e a or = .

If NGDP rises 9% and RGDP rises 4%

then the inflation rate is approximately 5%.



C n m r Pric In x CPI & Inflati n rat

• CPI is a measure of the overall level of prices

faced by

consumers

•

– tracks changes in the typical household’s

cos o v ng

– adjusts many contracts for inflation e.g. D.A.



1. Consumers surveyed to determine

’

“basket” of

goods

2. Every month, field investigators collect data

on

prices

of

all

items

in

the

basket;

compute

cost o as et

3. CPI in any month equals

Cost of basket in that month

Cost of basket in base period100

Base year for CPI is 2010



Percentage Variation

Year IndustrialWorkers

Industrial

Workers-Food

Agricul tureLabourers

CPIRURAL CPI URBAN

CPI

(RURAL +URBAN)

2007-08 6.2 8.4 7.5

2008-09 9.1 12.3 10.2

2009-10 12.2 15.2 13.9

2010-11 10.5 9.9 10.0

2011-12 8.4 6.3 8.2

2012-13 10.4 11.9 10.0 10.1 10.4 10.2



NOW YOU TRY

Basket fixed in the base ear: 20 oran es 10 a les

prices: For each year, compute

oranges apples

2012 10 15

the cost of the basket

the

CPI

(use

2012

as

the

2013 11 15

2014 12 16

base year)

the inflation rate from the

2015 13 15 preceding year

30



NOW YOU TRY

basket CPI rate

. . .

2013 5.7%105.73702014 400 114.3 8.1%

. .

31



’ “ ”



Wh l al Pric In x WPI & Inflati n rat

• A measure of the overall level of market prices

• Uses:

– rac s c anges n w o esa e pr ces

– used by

RBI

to

decide

monetary

policy

stance



.

every week

.

contribution of each item to value of

3. WPI in any month equals

Cost of basket in that month

Cost of basket in base period100 or

week

Base year for WPI is 2004‐05



Percentage Variation

FUEL & MANUFACTU

Year ALL PRIMARY FOOD NONFOOD POWER RED

2005-06 4.4 4.3 5.4 -3.3 13.5 2.4

2006-07 6.6 9.6 9.6 5.8 6.5 5.7

2007-08 4.7 8.3 7.0 11.9 0.0 4.8

2008-09 8.1 11.0 9.1 12.9 11.6 6.2

2009-10 3.8 12.7 15.3 5.5 -2.1 2.2

2010-11 9.6 17.7 15.6 22.3 12.3 5.7

2011-12 8.9 9.8 7.3 9.6 14.0 7.3

2012-13 7.4 9.8 9.9 10.5 10.3 5.4



The composition of the WPI’s “basket”



CPI/WPI vs. GDP DeflatorPrices

of

capital

goods:

– included in GDP deflator (if produced domestically) & WPI

–

Prices of

services:

– included in CPI, GDP deflator (if produced domestically)

– excluded from WPI

Prices of imported consumer goods: –

– excluded from GDP deflator

The basket of goods:

– CPI/

WPI:

fixed

at

the

base

year

or

any

other

as

decided

by govt.

– GDP deflator: changes every year



A comparison of 2 measures of inflation

14.0

16.0

h a n g e

e a r l i e r

10.0

12.0

e n t a g e c

2

m o n t h

6.0

8.0WPI

CPI‐IW

P e r

f r o m 1

4.0

0.0

.

p r

‐ 1 0

n ‐

1 0

g ‐

1 0

c t

‐ 1 0

c ‐

1 0

b ‐

1 1

p r

‐ 1 1

n ‐

1 1

g ‐

1 1

c t

‐ 1 1

c ‐

1 1

b ‐

1 2

p r

‐ 1 2

n ‐

1 2

g ‐

1 2

c t

‐ 1 2

c ‐

1 2

b ‐

1 3

p r

‐ 1 3

n ‐

1 3

A J A O D F A J A O D F A J A O D F A J



NOW YOU TRY



NOW YOU TRY

Po ulation b rou 2001 Number

employed

=

337 million

=

Population = 1025 million

Use the above data to calculate

the labor force

the

number

of

people

not

in

the

labor

force

the labor force participation rate

41

e unemp oymen ra e

NOW YOU TRY



NOW YOU TRY

data: E = 337 U = 27 POP = 1025

• labor force

= = =

• not in labor force

= – = – =

• unemployment rate

.

• labor force participation rate

.

42



•

• The Good

Market:

Keynesian

Cross

Model

– onsumpt on unct on, verage arg na

Propensities to Consume

– u u

– Autonomous Spending Multiplier & Tax Multiplier

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