Lecture 2
Macroeconomic Data and Variables
Macroeconomics
I. Macroeconomic Variables
Gross Domestic Product, GDP
Definition：
GDP is the total market value of all final goods and services produced by a country within a certain period (a quarter or a year).
I. Macroeconomic Variables
Gross Domestic Product, GDP (continued)
The importance
The variable reflects the economic activity level within a country.
The so-called economic growth is referred to the growth in GDP.
The so-called per capita GDP is often used for measuring the living standard of a country.
It is perhaps the most important variable in macroeconomics.
I. Macroeconomic Variables
Gross Domestic Product, GDP (continued)
Here，the so-called final product is referred to those products that are not used as intermediate input. For example,...
In addition, we shall also distinguish nominal GDP (calculated on current price) and real GDP (calculated on fixed, base year, price).
I. Macroeconomic Variables
Price and Inflation
Inflation is another problem that will be concerned in macroeconomics. Higher inflation may bring problem to the economy.
The inflation rate is a measure of the degree of inflation problem. It is referred to the growth rate of price level.
I. Macroeconomic Variables
Price and Inflation (continued)
There are mainly three statistic indices to measure price level:
GDP deflator;
consumer price index;
producer price index.
I. Macroeconomic Variables
Unemployment and Unemployment Rate
The unemployment is another important problem that is concerned in macroeconomics.
Unemployment rate is the measure of the extent of unemployment problem. This is the ratio of unemployment to total labor force.
II. Some Stylized Factors,
Evidence from Developed Countries
Why Important ?
A proper macroeconomic theory should be able to express the stylized factors as we observed from the empiric.
II. Some Stylized Factors,
Evidence from Developed Countries
Economic Growth and Business Cycles
An economy is generally in growth despite that sometimes GDP might decrease. The average growth rate of GDP is about 3% in current developed countries.
Economic growth often appears to be periodically cyclic. This cyclic property is often referred to be business cycles.
II. Some Stylized Factors,
Evidence from Developed Countries
Figure 1: The growth rate in real GDP in . 1961-2003
II. Some Stylized Factors,
Evidence from Developed Countries
Economic Growth and Unemployment Rate
There has been a significant relation between economic growth and unemployment. Generally a high growth often implies low unemployment.
This relation is often referred to Okun’s law. It is named according to Okun, an American economist who find this relation empirically.
II. Some Stylized Factors,
Evidence from Developed Countries
Figure 2: The Growth Rate versus Change in Unemployment Rate
II. Some Stylized Factors,
Evidence from Developed Countries
Inflation and Unemployment
If we observe the data before 1970’s, we find a significant trade-off between inflation and unemployment. Higher inflation often indicates low unemployment.
This relation is often referred to Phillips curve. It is named after a British economist Phillips who find this relation empirically.
II. Some Stylized Factors,
Evidence from Developed Countries
Inflation and Unemployment (continued)
This finding is once regarded to be a victory of Keynesian economics because
it can be expressed by Keynesian macroeconomics
it also provides a foundation for the effective application of Keynesian macroeconomic policy.
II. Some Stylized Factors,
Evidence from Developed Countries
Inflation and Unemployment (continued)
However, when we extend our observation to the current period, we find that this trade-off become unclear.
Such a deviation from the traditional Phillip’s curve also affect the debates among economists.
II. Some Stylized Factors,
Evidence from Developed Countries
Figure 3: Inflation Rate versus unemployment, 1961 – 2003, US
II. Some Stylized Factors,
Evidence from Developed Countries
Inflation and Unemployment (continued)
Such a deviation from the traditional Phillip’s curve also affects the debates among economists.
However, if we organize the data into three samples, we may find multiple Phillip’s curve. This indicates that the Phillip’s curve could be shifted.
II. Some Stylized Factors,
Evidence from Developed Countries
Figure 4: Inflation Rate versus unemployment, 1961-1969，1994-2003
II. Some Stylized Factors,
Evidence from Developed Countries
Figure 5: Inflation Rate versus unemployment, 1970-1973，1984-1993
II. Some Stylized Factors,
Evidence from Developed Countries
Figure 6: Inflation Rate versus unemployment, 1974-1983
III. National Income Account
There are two approaches to measure GDP
The expenditure approach
The income (or value added approach)
Theoretically, these two approach should give the same result
III. National Income Account
Expenditure Approach to Calculate GDP
This is the way to calculate the GDP via looking at how the final goods and services are used.
The GDP composition in terms of their usage:
consumption
investment
government expenditure
net export (export - import)
inventory change
III. National Income Account
Expenditure Approach to Calculate GDP (continued)
Remark: The consumption, investment and government expenditure defined above includes the purchases on the imported goods. This is the reason why import must be deducted from the export.
III. National Income Account
Income Approach to Calculate GDP
This is the way to look at value added of all produced final output. Therefore it might also be called the value added approach.
III. National Income Account
Income Approach to Calculate GDP (continued)
III. National Income Account
Income Approach to Calculate GDP (continued)
The GDP composition in terms of value added:
wage；
profit；
rent；
interest；
Others (., depreciation).
III. National Income Account
Income Approach to Calculate GDP (continued)
National Income: the income earned by the citizen. Sometime it is more important than GDP if a country has many foreign direct investment and many foreigners work here. Of course, national income should also include the income of domestic citizen earned in other countries.
III. National Income Account
The Input-Output Table
The expenditure approach and income approach will give the same result of computation in GDP. This can be proved by the input-output table.
III. National Income Account
The Input-Output Table (continued)
III. National Income Account
The Input-Output Table (continued)
The equality of income approach and expenditure approach indicates that
This indeed can be proved from the table.
