# MACROECONOMICS. The Data of Macroeconomics. N. Gregory Mankiw. PowerPoint Slides by Ron Cronovich. Modified for EC 204 by Bob Murphy

Save this PDF as:

Size: px
Start display at page:

Download "MACROECONOMICS. The Data of Macroeconomics. N. Gregory Mankiw. PowerPoint Slides by Ron Cronovich. Modified for EC 204 by Bob Murphy"

## Transcription

1 2 MACROECONOMICS N. Gregory Mankiw Modified for EC 204 by Bob Murphy PowerPoint Slides by Ron Cronovich 2013 Worth Publishers, all rights reserved

2 IN THIS CHAPTER, YOU WILL LEARN: the meaning and measurement of the most important macroeconomic statistics:! Gross Domestic Product (GDP)! The Consumer Price Index (CPI)! The Unemployment Rate 1

3 Gross Domestic Product: Definition The market value of all final goods and services produced within an economy in a given period of time. A single statistic for capturing how well the economy is performing. 2

4 Gross Domestic Product: Expenditure and Income Two ways to measure:! Total expenditure on domestically-produced final goods and services.! Total income earned by domestically-located factors of production. Expenditure equals income because every dollar a buyer spends becomes income to the seller. 3

5 The Circular Flow Income (\$) Labor Households Firms Goods Expenditure (\$) 4

6 Gross Domestic Product: Expenditure and Income! One caveat:! Measurement of income and expenditure is imperfect.! Difference in GDP and Gross Domestic Income (GDI) is called the Statistical Discrepancy. See Supplement 2-1 5

7 Value added Value added: The value of output minus the value of the intermediate goods used to produce that output 6

8 Final goods, value added, and GDP! GDP = value of final goods produced = sum of value added at all stages of production.! The value of the final goods already includes the value of the intermediate goods, so including intermediate and final goods in GDP would be double counting. 7

9 The expenditure components of GDP! Consumption, C! Investment, I! Government spending, G! Net Exports, NX An important identity: Y = C + I + G + NX value of total output aggregate expenditure 8

10 Consumption (C) definition: The value of all goods and services bought by households. Includes:! Durable Goods last a long time e.g., cars, home appliances! Nondurable Goods last a short time e.g., food, clothing! Services intangible items purchased by consumers e.g., dry cleaning, air travel 9

11 U.S. consumption, 2011 Consumption Durables Nondurables Services \$ billions 10,726 1,163 2,484 7,079 % of GDP

12 Investment (I)! Spending on capital, a physical asset used in future production! Includes:! Business fixed investment Spending on plant and equipment! Residential fixed investment Spending by consumers and landlords on housing units! Inventory investment The change in the value of all firms inventories 11

13 U.S. Investment, 2011 Investment Business fixed Residential Inventory \$ billions 1,916 1, % of GDP

14 Investment vs. Capital Note: Investment is spending on new capital. Example (assumes no depreciation):! 1/1/2012: Economy has \$10 trillion worth of capital! during 2012: Investment = \$2 trillion! 1/1/2013: Economy will have \$12 trillion worth of capital 13

15 Stocks vs. Flows A stock is a quantity measured at a point in time. E.g., The U.S. capital stock was \$10 trillion on January 1, Flow Stock A flow is a quantity measured per unit of time. E.g., U.S. investment was \$2 trillion during

16 Stocks vs. Flows - examples stock a person s wealth # of people with college degrees the govt debt flow a person s annual saving # of new college graduates this year the govt budget deficit 15

17 Government spending (G)! G includes all government spending on goods and services.! G excludes transfer payments (e.g., unemployment insurance payments), because they do not represent spending on goods and services. 16

18 U.S. Government Spending, 2011 Government Spending - Federal Non-defense Defense - State & local \$ billions 3,031 1, ,798 % of GDP

19 Net exports (NX)! NX = Exports Imports! Exports: the value of good and services sold to other countries! Imports: the value of goods and services purchased from other countries! Hence, NX equals net spending from abroad on our goods and services 18

20 U.S. Net Exports, 2011 Net Exports of Goods and Services \$ billions % of GDP Exports 2, Goods 1, Services Imports 2, Goods 2, Services

21 NOW YOU TRY An expenditure-output puzzle? Suppose a firm:! produces \$10 million worth of final goods! only sells \$9 million worth! Does this violate the expenditure = output identity? 20

22 Why output = expenditure! Unsold output goes into inventory, and is counted as inventory investment whether or not the inventory buildup was intentional.! In effect, we are assuming that firms purchase their unsold output. 21

23 GDP: An important and versatile concept We have now seen that GDP measures:! total income! total output! total expenditure! the sum of value added at all stages in the production of final goods 22

24 GNP vs. GDP! Gross National Product (GNP): Total income earned by the nation s factors of production, regardless of where located! Gross Domestic Product (GDP): Total income earned by domestically-located factors of production, regardless of nationality GNP GDP = factor payments from abroad minus factor payments to abroad! Examples of factor payments: wages, profits, rent, interest & dividends on assets 23

25 NOW YOU TRY Discussion Question In your country, which would you want to be bigger, GDP or GNP? Why? 24

26 GNP vs. GDP in select countries, 2010 Country GNP GDP GNP GDP (% of GDP) Bangladesh 109, , Japan 5,601,557 5,458, China 5,957,012 5,926, United States 14,635,600 14,586, India 1,712,645 1,727, Canada 1,549,652 1,577, Greece 292, , Iraq 77,842 82, Ireland 171, , GNP and GDP in millions of current U.S. dollars

27 Other Measures of Income! Net National Product = GNP Depreciation! National Income = NNP Statistical Discrepancy! National Income = Compensation of Employees + Proprietors Income + Rental Income + Corporate Profits + Net Interest + Indirect Business Taxes! Note: Supplement 2-7 describes recent change in definition of National Income to include Indirect Business Taxes. 26

28 Components of National Income,

29 Other Measures of Income! Personal Income = National Income - Indirect Business Taxes - Corporate Profits - Social Insurance Contributions - Net Interest + Dividends + Government Transfers to Individuals + Personal Interest Income! Disposable Personal Income = Personal Income - Personal Tax and Nontax Payments! Disposable Personal Income is what households and noncorporate businesses have to spend (or save). 28

30 Real vs. nominal GDP! GDP is the value of all final goods and services produced.! Nominal GDP measures these values using current prices.! Real GDP measure these values using the prices of a base year. 29

31 Real GDP controls for inflation! Changes in nominal GDP can be due to:! changes in prices! changes in quantities of output produced! Changes in real GDP can only be due to changes in quantities.! **One way to calculate real GDP is by using constant base-year prices. 30

32 Real vs. Nominal GDP GDP t = n P it Q it RGDP t = i=1 n P ib Q it i=1 31

33 U.S. Nominal and Real GDP, \$16,000 \$14,000 (billions) \$12,000 \$10,000 \$8,000 \$6,000 Real GDP (in 2005 dollars) \$4,000 \$2,000 Nominal GDP \$

34 GDP Deflator! Inflation rate: the percentage increase in the overall level of prices! One measure of the price level: GDP deflator Definition: GDP deflator = 100 Nominal GDP Real GDP 33

35 NOW YOU TRY GDP deflator and inflation rate Nom. GDP Real GDP GDP deflator Inflation rate 2010 \$46,200 \$46,200 n.a ,400 50, ,300 52,000! Use your previous answers to compute the GDP deflator in each year.! Use GDP deflator to compute the inflation rate from 2010 to 2011, and from 2011 to

36 NOW YOU TRY Answers Nom. GDP Real GDP GDP deflator Inflation rate 2010 \$46,200 \$46, n.a ,400 50, % ,300 52, %! Use your previous answers to compute the GDP deflator in each year.! Use GDP deflator to compute the inflation rate from 2010 to 2011, and from 2011 to

37 Two arithmetic tricks for working with percentage changes 1. For any variables X and Y, percentage change in (X * Y ) = percentage change in X + percentage change in Y EX: If your hourly wage rises 5% and you work 7% more hours, then your wage income rises approximately 12%. 36

38 Two arithmetic tricks for working with percentage changes 2. percentage change in (X/Y ) = percentage change in X - percentage change in Y EX: GDP deflator = 100 * NGDP/RGDP. If NGDP rises 9% and RGDP rises 4%, then the inflation rate is approximately 5%. 37

39 Measuring Economic Growth RGDP t / RGDP t 1 = = n P Q / P Q ib it ib it 1 i=1 n i=1 P ib Q it 1 n i=1 n i=1 Q / Q it it 1 P ib Q it 1 38

40 Measuring Economic Growth RGDP t / RGDP t 1 = n i=1 P ib Q it 1 n i=1 Q / Q it it 1 P ib Q it 1 1+ g t n i=1 = ω Q / Q i it it 1 39

41 Measuring Economic Growth A problem arises when using fixed base-year weights: Growth will vary depending on base year chosen. Rapidly growing sectors with declining relative prices will be weighted too much as base year becomes further and further in the past. Opposite for slowly growing sectors. 40

42 Chain-Weighted Real GDP! Over time, relative prices change, so the base year should be updated periodically--which BEA used to do.! In essence, chain-weighted real GDP updates the base year every year, so it is more accurate than fixed base-year GDP.! Official measure of GDP now produced by BEA.! See Supplement

43 Chain-Weighted Real GDP Step 1: Rewrite as: [1+ g t ] t-1 = 1+ g t n i=1 n i=1 P it-1 Q it 1 n i=1 Q it / Q it 1 P it-1 Q it 1 = ω t-1 it-1 Q it / Q it 1 42

44 Chain-Weighted Real GDP Step 2: Rewrite as: [1+ g t ] t = 1+ g t n i=1 n i=1 P it Q it 1 n i=1 Q it / Q it 1 P it Q it 1 = ω t it Q it / Q it 1 43

45 Chain-Weighted Real GDP Step 3: [1+ g t ] = {[1+ g t ] t [1+ g t ] t-1 } 0.5 To get level of real GDP, use nominal GDP for a given year and apply growth rate: RGDP t = 1+ g t 1+ g t 1 1+ g t 2 1+ g t 3 GDP t-4 Real GDP is measured here in year t-4 dollars. 44

46 When is the Economy in a Recession?! Rule of Thumb: Two quarters of decline in Real GDP! National Bureau of Economic Research uses more nuanced approach (see Supplement 1-3):! Monthly Indicators rather than Quarterly.! A significant decline in activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income, and wholesale-retail trade. 45

47 115 Various Measures of Output, 2000:Q1 to 2014:Q3, Indexed to 2007:Q4 = Index Value Average of GDP&GDI GDP GDI Year

48 10.00 Annualized Quarterly Change in Various Measures of Output, 2000:Q1 to 2014:Q Percent GDP GDI Average of GDP&GDI Year

49 Monthly Change in Employment (thousands)

50 Real Personal Income Net of Transfers (billions of 2005 dollars, seasonally adjusted annual rate)

51 Change in Industrial Production (monthly percent change at an annual rate) 30% 20% 10% 0% -10% -20% -30% -40% -50%

52 Monthly Real Retail Sales (millions of 2005 dollars)

53 Consumer Price Index (CPI)! A measure of the overall level of prices! Published by the Bureau of Labor Statistics (BLS)! Uses:! tracks changes in the typical household s cost of living! adjusts many contracts for inflation ( COLAs )! allows comparisons of dollar amounts over time 50

54 How the BLS constructs the CPI 1. Survey consumers to determine composition of the typical consumer s basket of goods 2. Every month, collect data on prices of all items in the basket; compute cost of basket 3. CPI in any month equals 100 Cost of basket in that month Cost of basket in base period 51

55 The composition of the CPI s basket Food and bev. Housing 16.9% 7.1% 6.0% 3.2% Apparel Transportation 3.6% 3.6% 3.4% Medical care Recreation Education 15.3% Communication Other goods and services 41.0%

56 Understanding the CPI CPI = E t E B = n i=1 n i=1 n Q P ib ib = i=1 n i=1 Q ib P it Q ib P ib P / P it ib Q ib P ib 53

57 Understanding the CPI CPI = E t n i=1 = γ P / P E ib it ib B where the weights are given by: γ ib = n i=1 Q ib P ib Q ib P ib 54

58 Understanding the CPI The CPI is a weighted average of prices relative to their value in the base period. The weight on each price relative reflects that good s relative importance in the CPI s basket. Note that the weights remain fixed over time. 55

59 Why the CPI may overstate inflation! Substitution bias: The CPI uses fixed weights, so it cannot reflect consumers ability to substitute toward goods whose relative prices have fallen.! Introduction of new goods: The introduction of new goods makes consumers better off and, in effect, increases the real value of the dollar. But it does not reduce the CPI, because the CPI uses fixed weights.! Unmeasured changes in quality: Quality improvements increase the value of the dollar but are often not fully measured. 56

60 10000 Figure 1 The CPI and Measures of the Price of Light 1800 = Log-scale CPI Traditional Price True Price

61 Table 1 The True Price of Light (price per 1000 lumen hours) Current Real (1992) Price Price Year (cents) (cents)

62 The size of the CPI s bias! In 1995, a Senate-appointed panel of experts estimated that the CPI overstates inflation by about 1.1% per year.! So the BLS made adjustments to reduce the bias.! Now, the CPI s bias is probably under 1% per year.! See Supplements 2-10 and

63 Figure 1 Comparing the Official CPI and CPI-RS (annual percentage change) Offical CPI CPI-RS Source: U.S. Department of Labor, Bureau of Labor Statistics. Data are annual percent change.!

64 Consumer Price Inflation Measures (12-Month Percent Change) Jan 2000 Jan 2002 Jan 2004 Jan 2006 Jan 2008 Jan 2010 Jan 2012 Jan 2014 CPI Chained CPI Jan 2000 Jan 2002 Jan 2004 Jan 2006 Jan 2008 Jan 2010 Jan 2012 Jan 2014 Core CPI Chained Core CPI Source: Bureau of Labor Statistics

65 CPI vs. GDP Deflator Prices of capital goods:! included in GDP deflator (if produced domestically)! excluded from CPI Prices of imported consumer goods:! included in CPI! excluded from GDP deflator The basket of goods:! CPI: fixed! GDP deflator: changes every year 58

66 Two measures of inflation in the U.S. Percentage change from 12 months earlier CPI 2 0 GDP deflator

67 Categories of the Population: From the Household Survey (CPS)! Employed working at a paid job! Unemployed not employed but looking for a job! Labor Force the amount of labor available for producing goods and services; all employed plus unemployed persons! Not in the Labor Force not employed, not looking for work 60

68 Two important labor force concepts! Unemployment rate percentage of the labor force that is unemployed (see Supplement 2-12 for alternative measures of the unemployment rate)! Labor Force Participation Rate the fraction of the adult population that participates in the labor force, i.e. is working or looking for work 61

69 The Establishment Survey! The BLS obtains a second measure of employment by surveying businesses, asking how many workers are on their payrolls.! Neither measure is perfect, and they occasionally diverge due to:! treatment of self-employed persons! new firms not counted in establishment survey! technical issues involving population inferences from sample data 62

70 Two measures of employment growth 6% Percentage change from 12 months earlier 4% 2% 0% -2% -4% household survey establishment survey -6%

71 CHAPTER SUMMARY! Gross domestic product (GDP) measures both total income and total expenditure on the economy s output of goods & services.! Nominal GDP values output at current prices; real GDP values output at constant prices. Changes in output affect both measures, but changes in prices only affect nominal GDP.! GDP is the sum of consumption, investment, government purchases, and net exports. 64

72 CHAPTER SUMMARY! The overall level of prices can be measured by either:! the consumer price index (CPI), the price of a fixed basket of goods purchased by the typical consumer, or! the GDP deflator, the ratio of nominal to real GDP! The unemployment rate is the fraction of the labor force that is not employed. 65

73 Alternative Inflation Measures 12-Month Percent Change Jan 2000 Jan 2002 Jan 2004 Jan 2006 Jan 2008 Jan 2010 Jan 2012 Jan 2014 CPI Chained CPI Source: Bureau of Labor Statistics

74 Alternative Core Inflation Measures 12-Month Percent Change Jan 2000 Jan 2002 Jan 2004 Jan 2006 Jan 2008 Jan 2010 Jan 2012 Jan 2014 Core CPI Chained Core CPI Source: Bureau of Labor Statistics

### The Data of Macroeconomics

CHAPTER 2 The Data of Macroeconomics Modified for ECON 2204 by Bob Murphy 2016 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU WILL LEARN:... the meaning and measurement of the most important

### The Circular Flow 1/15/2013. Gross Domestic Product: Expenditure and Income

IN THIS CHAPTER, YOU WILL LEARN: ECON 3010 Intermediate Macroeconomics Chapter 2 The Data of Macroeconomics the meaning and measurement of the most important macroeconomic statistics: gross domestic product

### 6. Real GDP means the value of goods and services is measured in prices. A) current B) actual C) constant D) average

Name: Date: 1. Assume that total output consists of 4 apples and 6 oranges and that apples cost \$1 each and oranges cost \$0.50 each. In this case, the value of GDP is: A) 10 pieces of fruit. B) \$7. C)

### Why expenditure = income. The Circular Flow. Circular flow. Gross Domestic Product

Gross Domestic Product Why expenditure = income Two definitions: 1. Total expenditure on final goods and services 2. Total income earned by factors of production In In every transaction, the the buyer

### NATIONAL INCOME AND PRODUCT ACCOUNTING MEASURING THE MACROECONOMY

NATIONAL INCOME AND PRODUCT ACCOUNTING MEASURING THE MACROECONOMY 1. NIPA: GNP and GDP 2. Saving and Wealth 3. Prices and Inflation 4. Unemployment 5. Problems with Measuring the Macroeconomy There are

Chapter 2 The Measurement and Structure of the National Economy Chapter Outline National Income Accounting: The Measurement of Production, Income, and Expenditure Gross Domestic Product Saving and Wealth

### Chapter Outline. Chapter 2. National Income Accounting. National Income Accounting

Chapter 2 The Measurement and Structure of the National Economy Chapter Outline National Income Accounting: The Measurement of Production, Income, and Expenditure Real GDP, Price Indexes, and Inflation

### Measuring National Output and National Income

Measuring National Output and National Income 6 C H A P T E R O U T L I N E Gross Domestic Product Final Goods and Services Exclusion of Used Goods and Paper Transactions Exclusion of Output Produced Abroad

### CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH

CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH Learning Goals for this Chapter: To know what we mean by GDP and to use the circular flow model to explain why GDP equals aggregate expenditure and aggregate

### Measuring Economic Performance. Chapter 2

Measuring Economic Performance Chapter 2 Outline Gross Domestic Product Measuring GDP Through Spending Measuring GDP Through Production Measuring GDP Through Income Saving and Investment Transactions with

### Name: Date: 3. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income

Name: Date: 1. GDP is all of the following except the total: A) expenditure of everyone in the economy. B) income of everyone in the economy. C) expenditure on the economy's output of goods and services.

### 7. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income

Name: Date: 1. GDP is all of the following except the total: A) expenditure of everyone in the economy. B) income of everyone in the economy. C) expenditure on the economy's output of goods and services.

### Chapter 11: Activity

Economics for Managers by Paul Farnham Chapter 11: Measuring Macroeconomic Activity 11.1 Measuring Gross Domestic Product (GDP) GDP: the market value of all currently yproduced final goods and services

### CHAPTER 20 GROSS DOMESTIC PRODUCT ACCOUNTING

CHAPTER 20 GROSS DOMESTIC PRODUCT ACCOUNTING Chapter in a Nutshell Gross domestic product was introduced in the previous chapter as a basic measure of macroeconomic performance. This chapter identifies

### Reference: Gregory Mankiw s Principles of Macroeconomics, 2 nd edition, Chapters 10 and 11. Gross Domestic Product

Macroeconomics Topic 1: Define and calculate GDP. Understand the difference between real and nominal variables (e.g., GDP, wages, interest rates) and know how to construct a price index. Reference: Gregory

### Unit 4: Measuring GDP and Prices

Unit 4: Measuring GDP and Prices ECO 120 Global Macroeconomics 1 1.1 Reading Reading Module 10 - pages 106-110 Module 11 1.2 Goals Goals Specific Goals: Understand how to measure a country s output. Learn

### Economics 212 Principles of Macroeconomics Study Guide. David L. Kelly

Economics 212 Principles of Macroeconomics Study Guide David L. Kelly Department of Economics University of Miami Box 248126 Coral Gables, FL 33134 dkelly@miami.edu First Version: Spring, 2006 Current

### Macroeconomics: GDP, GDP Deflator, CPI, & Inflation

HOSP 2207 (Economics) Learning Centre Macroeconomics: GDP, GDP Deflator, CPI, & Inflation Macroeconomics is the big picture view of an economy. Microeconomics looks at the market for a specific good, like

### MEASURING GDP AND ECONOMIC GROWTH CHAPTER

MEASURING GDP AND ECONOMIC GROWTH CHAPTER Objectives After studying this chapter, you will able to Define GDP and use the circular flow model to explain why GDP equals aggregate expenditure and aggregate

### Economic Output. Economic Output. GDP: Definition. GDP: Definition. GDP: Definition. GDP: Definition. Agenda. Gross Domestic Product (GDP)

Economic Output Economic Output Agenda Defining GDP Measuring Real GDP The Expenditure Side The Income Side Economic Output Gross Domestic Product (GDP) The official measure of a country s economic output.

### Measuring a Nation s Income THE MEASUREMENT OF GROSS DOMESTIC PRODUCT. In this chapter, look for the answers to these questions:

In this chapter, look for the answers to these questions: What is Gross Domestic Product (GDP)? 5 How is GDP related to a nation s total income and spending? What are the components of GDP? How is GDP

### 31. Gross Domestic Product equals a. Y = C + I G + NX. b. Y = C I + G + NX. c. Y = C + I + G + NX.

GDP Review Questions 13. Gross Domestic Product measures the a. quantity of the goods and services produced in a given year, listed item by item, within a country. b. income of the business sector within

### Chapter 20. The Measurement of National Income. In this chapter you will learn to. National Output and Value Added

Chapter 20 The Measurement of National Income In this chapter you will learn to 1. Use the concept of value added to solve the problem of double counting when measuring national income. 2. Describe the

### Households Wages, profit, interest, rent = \$750. Factor markets. Wages, profit, interest, rent = \$750

KrugmanMacro_SM_Ch07.qxp 11/9/05 4:47 PM Page 87 Tracking the Macroeconomy 1. Below is a simplified circular-flow diagram for the economy of Micronia. a. What is the value of GDP in Micronia? b. What is

### Exam 1 Review. 3. A severe recession is called a(n): A) depression. B) deflation. C) exogenous event. D) market-clearing assumption.

Exam 1 Review 1. Macroeconomics does not try to answer the question of: A) why do some countries experience rapid growth. B) what is the rate of return on education. C) why do some countries have high

### Chapter 2 The Measurement and Structure of the National Economy

Chapter 2 The Measurement and Structure of the National Economy Multiple Choice Questions 1. The three approaches to measuring economic activity are the (a) cost, income, and expenditure approaches. (b)

### Big Concepts. Measuring U.S. GDP. The Expenditure Approach. Economics 202 Principles Of Macroeconomics

Lecture 6 Economics 202 Principles Of Macroeconomics Measuring GDP Professor Yamin Ahmad Real GDP and the Price Level Economic Growth and Welfare Big Concepts Ways to Measure GDP Expenditure Approach Income

### Cosumnes River College Principles of Macroeconomics Problem Set 3 Due September 17, 2015

Cosumnes River College Principles of Macroeconomics Problem Set 3 Due September 17, 2015 Name: Solutions Fall 2015 Prof. Dowell Instructions: Write the answers clearly and concisely on these sheets in

### Measuring a Nation s Income

Measuring a Nation s Income I. Review of the Definitions of Microeconomics and Macroeconomics A. Definition of microeconomics: the study of how households and firms make decisions and how they interact

### ECONOMIC GROWTH* Chapter. Key Concepts

Chapter 5 MEASURING GDP AND ECONOMIC GROWTH* Key Concepts Gross Domestic Product Gross domestic product, GDP, is the market value of all the final goods and services produced within in a country in a given

### Chapter 24. What will you learn in this chapter? Valuing an economy. Measuring the Wealth of Nations

Chapter 24 Measuring the Wealth of Nations 2014 by McGraw-Hill Education 1 What will you learn in this chapter? How to calculate gross domestic product (GDP). Why each component of GDP is important. What

### MEASURING A NATION S INCOME

10 MEASURING A NATION S INCOME WHAT S NEW IN THE FIFTH EDITION: There is more clarification on the GDP deflator. The Case Study on Who Wins at the Olympics? is now an FYI box. LEARNING OBJECTIVES: By the

### National Income Accounting

Chapter 2 The Measurement and Structure of the Canadian Economy Economics 282 University of Alberta National Income Accounting The national income accounts is an accounting framework used in measuring

### Macroeconomia Capitolo 7. Seguire l andamento della macroeconomia. What you will learn in this chapter:

Macroeconomia Capitolo 7 Seguire l andamento della macroeconomia PowerPoint Slides by Can Erbil 2006 Worth Publishers, all rights reserved What you will learn in this chapter: How economists use aggregate

### 11.1 Estimating Gross Domestic Product (GDP) Objectives

11.1 Estimating Gross Domestic Product (GDP) Objectives Describe what the gross domestic product measures. Learn two ways to calculate the gross domestic product, and explain why they are equivalent. 11.1

### ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He. Homework 1 Suggested Answer (Total points: 100)

ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He Homework 1 Suggested Answer (Total points: 100) Understanding the growth rate and how to measure it Problem no. 1 on page 35. (10 points)

### Chapter 5: National Income Accounting John Petroff

Chapter 5: National Income Accounting John Petroff INTRODUCTION The purpose of this topic is to study how the gross national product is measuring the economic activity of a nation. The concept is defined

### GDP: Measuring Total Production and Income

Chapter 7 (19) GDP: Measuring Total Production and Income Chapter Summary While microeconomics is the study of how households and firms make choices, how they interact in markets, and how the government

### CHAPTER 7 Measuring Domestic Output, National Income, and the Price Level

CHAPTER 7 Measuring Domestic Output, National Income, and the Price Level Topic Question numbers 1. GDP concept 1-15 2. C, I, G, and X n components 16-43 3. Investment and the capital stock 44-57 4. GDP

### This is the on-line Multiple Choice Quiz for Chapter 4. Please do the following. Go to the special codes section on your score sheet

Instructions: This is the on-line Multiple Choice Quiz for Chapter 4. Please do the following. Step I - Go to the special codes section on your score sheet Write your section number (1, or 4, or 5) under

### Name (Please print) Assigned Seat. ECO202: PRINCIPLES OF MACROECONOMICS FIRST MIDTERM EXAM SPRING 2011 Prof. Bill Even FORM 1.

Name (Please print) Assigned Seat ECO202: PRINCIPLES OF MACROECONOMICS FIRST MIDTERM EXAM SPRING 2011 Prof. Bill Even FORM 1 Directions 1. Fill in your scantron with your unique id and form number. Doing

### PowerPoint Lecture Notes for Chapter 23: Measuring a Nation s s Income

PowerPoint Lecture Notes for Chapter 23: Measuring a Nation s Income Principles of Economics 5 th edition, by N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich C H A P T E R 23 Measuring a Nation

### Practice Problems on NIPA and Key Prices

Practice Problems on NIPA and Key Prices 1- What are the three approaches to measuring economic activity? Why do they give the same answer? The three approaches to national income accounting are the product

### 1. A glimpse of the real sector: GDP, inflation rate, macroeconomic identities

1. A glimpse of the real sector: GDP, inflation rate, macroeconomic identities 1. Real sector and financial sector Macroeconomics studies the aggregate effects of what people do. Most of what people do

### MEASURING GDP AND ECONOMIC GROWTH*

Chapter 5 MEASURING GDP AND ECONOMIC GROWTH* Gross Domestic Product Topic: GDP 1) Gross domestic product is the total produced within a country in a given time period. A) market value of all final and

### Chapter 20. The Measurement of National Income

Chapter 20 The Measurement of National Income National Output and Value Added -many production processes involve multiple stages, only some which are done within the same firm -this raises an important

### Exam 1 Review. Page 1

Exam 1 Review 1. When a firm sells a product out of inventory, GDP: A) increases. B) decreases. C) is not changed. D) increases or decreases, depending on the year the product was produced. 2. An economy's

### Chapter 5: GDP and Economic Growth

Chapter 5: GDP and Economic Growth Be Mean Green! Please consider the environment before printing this Chapter Outline. It ll be available online throughout the semester. For Firms private accounting measures

### Measuring the Aggregate Economy

CHAPTER 25 Measuring the Aggregate Economy The government is very keen on amassing statistics... They collect them, add them, raise them to the n th power, take the cube root and prepare wonderful diagrams.

ANSWERS TO END-OF-CHAPTER QUESTIONS 7-1 In what ways are national income statistics useful? National income accounting does for the economy as a whole what private accounting does for businesses. Firms

### GDP Measuring Output and Income Part II. Alternative Measures Real World Approximations. Reading: RJB for lecture 5

GDP Measuring Output and Income Part II Alternative Measures Real World Approximations Reading: RJB for lecture 5 GDP: Statistical Approximations The Bureau of Economic Analysis (BEA) provides both annual

### National Income Accounting. Courtesy : www. carlprosper4nugs.yolasite.com

National Income Accounting Courtesy : www. Introduction to Economy of Ghana Measuring the Economy - National Income Accounting Structure of the Economy and Sectoral Outlook Economic History of Ghana: preindependence,

### Gross Domestic Product. Will the Canadian economy weaken through the next year and shrink, or will it remain strong and expand?

Will the Canadian economy weaken through the next year and shrink, or will it remain strong and expand? To assess the state of the economy and to make big decisions about business expansion, firms use

### Chapter 8. GDP : Measuring Total Production and Income

Chapter 8. GDP : Measuring Total Production and Income Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics Related Economic Terms Macroeconomics:

### The level of price and inflation Real GDP: the values of goods and services measured using a constant set of prices

Chapter 2: Key Macroeconomics Variables ECON2 (Spring 20) 2 & 4.3.20 (Tutorial ) National income accounting Gross domestic product (GDP): The market value of all final goods and services produced within

### Chapter 5 Macroeconomic Measurement: The Current Approach Macroeconomics In Context (Goodwin, et al.)

Chapter 5 Macroeconomic Measurement: The Current Approach Macroeconomics In Context (Goodwin, et al.) Chapter Overview In this chapter, you will be introduced to a fairly standard examination of the National

### Chap 11 & 12. Measuring the Cost of Living THE CONSUMER PRICE INDEX

Chap 11 & 12 Chap 10: Measuring a Nation s Income: GDP, Nominal GDP, Real GDP, and GDP Deflator Next topic: Chap 11: Measuring the Cost of Living: CPI GDP from an whole economy point of view CPI from a

### Measuring the Cost of Living THE CONSUMER PRICE INDEX

6 In this chapter, look for the answers to these questions: What is the Consumer (CPI)? How is it calculated? What s it used for? What are the problems with the CPI? How serious are they? How does the

### Lecture 1: Gross Domestic Product

Lecture 1: Gross Domestic Product August 28, 2014 Prof. Wyatt Brooks MEASURING A NATION S INCOME 0 Structure of the Course First Part of the Class: The macroeconomy in the long run Why are countries rich

### INTRODUCTION TO MACROECONOMICS MIDTERM- SAMPLE QUESTIONS

INTRODUCTION TO MACROECONOMICS MIDTERM- SAMPLE QUESTIONS MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In May 2009, Ford Motor Company's sales

### The Basics of National Income Accounting. Macroeconomics

The Basics of National Income Accounting Macroeconomics National Income Accounting A variety of measures of national income and output are used in economics to estimate total economic activity in a country

### GDP M A C R O E C O N O M I C S

GDP M A C R O E C O N O M I C S Gross Domestic Product GDP The market value of all final goods and services produced within a country during a given period of time. Breaking down the definition: 1. Market

### Week 4 Tutorial Question Solutions (Ch2 & 3)

Chapter 2: Q1: Macroeconomics P.52 Numerical Problems #3 part (a) Q2: Macroeconomics P.52 Numerical Problems #5 Chapter 3: Q3: Macroeconomics P.101 Numerical Problems #5 Q4: Macroeconomics P102 Analytical

### Lesson 3 - National Income Accounting

Lesson 3 - National Income Accounting Acknowledgement: Ed Sexton and Kerry Webb were the primary authors of the material contained in this lesson. Section 1 - National Income Accounting History of National

### Solutions to Week 3 Tutorial Questions (Ch2)

Chapter 2: Q1: Macroeconomics P.51 Review Questions #1 Q2: Macroeconomics P.51 Review Questions #5 Q3: Macroeconomics P.52 Numerical Problems #5 Q4: Macroeconomics P.52 Numerical Problems #6 Q5: Macroeconomics

### Professor Christina Romer. LECTURE 17 MACROECONOMIC VARIABLES AND ISSUES March 17, 2016

Economics 2 Spring 2016 Professor Christina Romer Professor David Romer LECTURE 17 MACROECONOMIC VARIABLES AND ISSUES March 17, 2016 I. MACROECONOMICS VERSUS MICROECONOMICS II. REAL GDP A. Definition B.

### A. GDP, Economic Growth, and Business Cycles

ECON 3023 Hany Fahmy FAll, 2009 Lecture Note: Introduction and Basic Concepts A. GDP, Economic Growth, and Business Cycles A.1. Gross Domestic Product (GDP) de nition and measurement The Gross Domestic

### Wages Coconuts 200 Fish 100 Consumption Coconuts 200 Fish 100

Chapter 2 Numerical 1 Professor Gilligan Production Coconuts 1000 Fish 500 Gilligan wages Fish 100 Stored coconuts Fertilizer 100 Price 2 coconuts per fish Wages Fish 100 Consumption Fish 100 GDP= Value

### I. Measuring Output: GDP

University of California-Davis Economics 1B-Intro to Macro Handout 3 TA: Jason Lee Email: jawlee@ucdavis.edu I. Measuring Output: GDP As was mentioned earlier, the ability to estimate the amount of production

### VANCOUVER ISLAND UNIVERSITY. ECON212: PRINCIPLES OF MACROECONOMICS, Spring 2013 SAMPLE MIDTERM EXAM. Name (Last, First): ID #: Signature:

Important: Please remember it is a sample exam. Number of questions in each section and structure of questions in section b and c would vary as discussed in class VANCOUVER ISLAND UNIVERSITY ECON212: PRINCIPLES

### At the end of Chapter 10, you will be able to answer the following:

1 Objectives for Chapter 10 The Circular Flow Model At the end of Chapter 10, you will be able to answer the following: 1. Explain the basic circular flow model. 2. Define "consumption" and "saving" 3.

### Chapter 12. National Income Accounting and the Balance of Payments. Slides prepared by Thomas Bishop

Chapter 12 National Income Accounting and the Balance of Payments Slides prepared by Thomas Bishop Preview National income accounts measures of national income measures of value of production measures

### Measuring GDP and Economic Growth

20 Measuring GDP and Economic Growth After studying this chapter you will be able to Define GDP and explain why GDP equals aggregate expenditure and aggregate income Explain how Statistics Canada measures

### Macroeconomics Instructor: Jen Dinsmore Hanson Homework Assignment Chapter 9. Multiple Choice Questions

Macroeconomics Instructor: Jen Dinsmore Hanson Homework Assignment Chapter 9 Multiple Choice Questions 1. Net domestic product is usually preferred to GDP by economists because net national product A.

### Tracking the Macroeconomy

chapter 7(23) Tracking the Macroeconomy Chapter Objectives Students will learn in this chapter: How economists use aggregate measures to track the performance of the economy. What gross domestic product,

### Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Sample Final Exam Name Id # Part B Instructions: Please answer in the space provided and circle your answer on the question paper as well.

### Pre-Test Chapter 6 ed17 2

Pre-Test Chapter 6 ed17 2 Multiple Choice Questions 1. (Last Word) The U.S. government agency responsible for compiling the national income accounts is the: A. Census Bureau. B. Bureau of Labor Statistics

### Name: Date: 3. Variables that a model tries to explain are called: A. endogenous. B. exogenous. C. market clearing. D. fixed.

Name: Date: 1 A measure of how fast prices are rising is called the: A growth rate of real GDP B inflation rate C unemployment rate D market-clearing rate 2 Compared with a recession, real GDP during a

### Chapter 06 Every Macroeconomic Word You Ever Heard: Gross...

Chapter 06 Every Macroeconomic Word You Ever Heard: Gross... Multiple Choice Questions 1. The reason that only final sales are counted in GDP is A. To avoid double counting goods that are sold so as to

### MACROECONOMICS. Government Debt MANKIW N. GREGORY. PowerPoint Slides by Ron Cronovich C H A P T E R SIXTH EDITION

C H A P T E R 15 Government Debt MACROECONOMICS N. GREGORY MANKIW 2008 Worth Publishers, all rights reserved SIXTH EDITION PowerPoint Slides by Ron Cronovich In this chapter, you will learn about the size

### EC201 Intermediate Macroeconomics. EC201 Intermediate Macroeconomics Problem Set 1 Solution

EC201 Intermediate Macroeconomics EC201 Intermediate Macroeconomics Problem Set 1 Solution 1) Given the difference between Gross Domestic Product and Gross National Product for a given economy: a) Provide

### Econ 102 Measuring National Income and Prices Solutions

Econ 102 Measuring National Income and Prices Solutions 1. Measurement of National Income and Decomposing GDP This question is designed to see if you understand how Gross Domestic Product (GDP) is measured.

### LECTURE NOTES ON MACROECONOMIC PRINCIPLES

LECTURE NOTES ON MACROECONOMIC PRINCIPLES Peter Ireland Department of Economics Boston College peter.ireland@bc.edu http://www2.bc.edu/peter-ireland/ec132.html Copyright (c) 2013 by Peter Ireland. Redistribution

### Macroeconomics Instructor Miller GDP Practice Problems

Macroeconomics Instructor Miller GDP Practice Problems 1. Gross domestic product in the economy is measured by the A) total number of goods and services produced in the economy. B) dollar value of all

### Chapter 5 Measuring Economic Activity: GDP and Unemployment

Chapter 5 Measuring Economic Activity: GDP and Unemployment Overview This chapter looks in detail at how economists measure two major macroeconomic variables: gross domestic product (GDP) and the unemployment

### 2. Measuring the Macroeconomy

Intermediate Macroeconomics 2. Measuring the Macroeconomy Contents 1. Measuring Total Output A. Measurement B. Omissions from GDP 2. How to Measure GDP A. Expenditure Approach 1. Consumption 2. Investment

### Introduction to Macroeconomics. Sebastian Koch Lauder Business School Summer term 2016

Introduction to Macroeconomics Sebastian Koch Lauder Business School Summer term 2016 Course Outline 2 LBS Intranet CIS Access to course description via LBS Intranet: https://cis.lbs.ac.at/ Check the course

### 1. From the following data calculate GNP at factor cost by Income Method & Expenditure Method. Rs. in Crores

National Income Accounting 1. From the following data calculate GNP at factor cost by Income Method & Expenditure Method Items Rs. in Crores Net Domestic capital formation 500 Compensation of employees

### April 4th, 2014. Flow C was 9 trillion dollars, Flow G was 2 trillion dollars, Flow I was 3 trillion dollars, Flow (X-M) was -0.7 trillion dollars.

Problem Session I April 4th, 2014 Reference: Parkin, Introduction to economics, 2011 1. The rm that printed your Introduction to economics textbook bought the paper from XYZ Paper Mills. Was this purchase

### Introduction to Macroeconomics. TOPIC 1: Introduction, definition, measures

TOPIC 1: Introduction, definitions, measures Annaïg Morin CBS - Department of Economics August 2013 What is macroeconomics about? Understanding the behavior of an economy as a whole. studying aggregated

### HW 2 Macroeconomics 102 Due on 06/12

HW 2 Macroeconomics 102 Due on 06/12 1.What are the three important macroeconomic goals about which most economists, and society at large, agree? a. economic growth, full employment, and low interest rates

### Chapter 6: Measuring the Price Level and Inflation. The Price Level and Inflation. Connection between money and prices. Index Numbers in General

Chapter 6: The Price Level and Measuring the Price Level and Microeconomic causes changes in individual markets can explain only a tiny fraction of price change For the most part, price rises came about

### A HOW-TO GUIDE: UNDERSTANDING AND MEASURING INFLATION

A HOW-TO GUIDE: UNDERSTANDING AND MEASURING INFLATION By Jim Stanford Canadian Centre for Policy Alternatives, 2008 Non-commercial use and reproduction, with appropriate citation, is authorized. This guide

### CHAPTER 7 CONCEPT OF NATIONAL INCOME

CHAPTER 7 CONCEPT OF NATIONAL INCOME 171 172 NATIONAL INCOME s CIRCULAR FLOW The concept of circular flow of national income involves two principles. In every economic exchange, the seller receives exactly

### Lecture 3: National Income Accounting Reference - Chapter 5. 3) The Income Approach

Lecture 3: National Income Accounting Reference - Chapter 5 3) The Income Approach The income approach defines GDP in terms of the income derived or created from producing final goods and services. Net

### Topic 4: Different approaches to GDP

Topic 4: Different approaches to GDP PRINCIPLES OF MACROECONOMICS Dr. Fidel Gonzalez Department of Economics and Intl. Business Sam Houston State University Three different approaches to measure the GDP

### Chapter 1 Lecture Notes: Economics for MBAs and Masters of Finance

Chapter 1 Lecture Notes: Economics for MBAs and Masters of Finance Morris A. Davis Cambridge University Press stands for Gross Domestic Product. Nominal is the dollar value of all goods and services that

### Economics. Open-Economy Macroeconomics: Basic Concepts. Introduction. In this chapter, look for the answers to these questions: N.

C H A P T E R 31 Open-Economy Macroeconomics: Basic Concepts P R I N C I P L E S O F Economics N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2009 South-Western, a part of Cengage Learning,