Understanding GDP: Production and Income, Real and Nominal, and the Unemployment Rate - Pr, Apuntes de Administración de Empresas

¡Descarga Understanding GDP: Production and Income, Real and Nominal, and the Unemployment Rate - Pr y más Apuntes en PDF de Administración de Empresas solo en Docsity! Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 LECTURE 1: Some definitions: GDP, unemployment rate, inflation rate Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.2 •  National income and product accounts are an accounting system used to measure aggregate economic activity. 2-1 Aggregate Output GDP: Production and Income •  The measure of aggregate output in the national income accounts is gross domestic product, or GDP. Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.5 •  There are three ways of defining GDP: 2. GDP is the sum of value added in the economy during a given period. •  Value added equals the value of a firm’s production minus the value of the intermediate goods it uses in production. GDP: Production and Income 2-1 Aggregate Output (Continued) Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.6 •  There are three ways of defining GDP: 3.  GDP is the sum of incomes in the economy during a given period. GDP: Production and Income Table 2.1 The composition of GDP by type of income, 1970 and 2007 2-1 Aggregate Output (Continued) Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.7 •  EXAMPLE GDP: Production and Income 2-1 Aggregate Output (Continued) Steel  Company  (Firm  1)         Car  Company  (Firm  2)     Sales   100       Sales   200   Wages   80       Wages   70           Steel  purchases   100   Profits   20       Profits   30   Def 1: GDP = 200 Def 2: GDP = 100 + (200 – 100) Def 3: GDP = (80 + 20) + (70 + 30) Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.10 Nominal and Real GDP Figure 2.1 Nominal and real GDP in the EU15 since 1970 Since 1970, nominal GDP in the EU15 increased by a factor of 14. Real GDP increased by a factor of 2.5 Source: OECD Economic Outlook database 2-1 Aggregate Output (Continued) Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.11 The terms nominal GDP and real GDP each have many synonyms: •  Nominal GDP is also called pound GDP or GDP in current pounds. •  Real GDP is also called GDP in terms of goods, GDP in constant pounds, GDP adjusted for inflation, or GDP in 2000 pounds. •  GDP will refer to real GDP, and Yt will denote real GDP in year t. •  Nominal GDP and variables measured in current dollars will be denoted by a euro sign in front of them—for example, $Yt. for nominal GDP in year t. Nominal and Real GDP 2-1 Aggregate Output (Continued) Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.12 Real GDP per capita is the ratio of real GDP to the population of the country. GDP growth equals: 1 1)( − −− t tt Y YY •  Periods of positive GDP growth are called expansions. •  Periods of negative GDP growth are called recessions. GDP: Level Versus Growth Rate 2-1 Aggregate Output (Continued) Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.15 Real GDP, Technological Progress and the Price of Computers •  MEASURING GDP IS DIFFICULT: •  1. The quality of products is changing over time. •  A tough problem in computing real GDP is how to deal with changes in quality of existing goods. One of the most difficult cases is computers. •  The approach used by economists to adjust for improvements is to look at the market for computers and how it values computers with different characteristics in a given year. •  This approach, which treats goods as providing a collection of characteristics— here speed, memory and so on—each with an implicit price, is called hedonic pricing (hedone means “pleasure” in Greek). •  For instance, computers are becoming cheaper (-10%) and faster (+18%). Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.16 Real GDP, Technological Progress and the Price of Computers •  MEASURING GDP IS DIFFICULT: •  2. New products are a headache (many new services are now given away free!) •  The price for services from Facebook, YouTube, Wikipedia, Google is practically 0. •  Think about Skype. It made long-distance phone calls free.. But this implies a reduction in measured GDP! Source: The Economist, April 30th Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.17 Real GDP, Technological Progress and the Price of Computers •  MEASURING GDP IS DIFFICULT: •  3. Measuring illegal production is difficult •  Notice that many activities may be legal in some countries but illegal in others (e.g. prostitution, drugs). Therefore, you want to have them in the GPD if you are using GDP to compare countries. •  Recent GDP figures also include prostitution figures and drugs. •  But here you need a lot of guessing. For instance, the figures for prostitutions are obtained by assuming that a fixed percentage of males uses these “services”, and prices are imputed starting from lap dancing services (plus a small extra). Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.20 2-1 Aggregate Output (Continued) IS GDP A GOOD MEASURE OF ECONOMIC WELL-BEING? -GDP tells us the average income and expenditure of the average person in the economy -GDP does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our courage, nor our wisdom, nor our devotion to the country. It measures everything, in short, except that which makes life worthwhile. (Robert Kennedy). -But then.. Why do we care about GDP? GDP does not measure those things that make life worthwhile, but it does measure our ability to obtain many of the inputs into a worthwhile life. Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.21 2-1 Aggregate Output (Continued) IS GDP A GOOD MEASURE OF ECONOMIC WELL-BEING? Still GDP is not a perfect measure of happiness. Some things that contribute to good life are left out of GDP: - Leisure - Almost all the activity that takes place outside markets - The quality of the environment - Distribution of income. Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.22 2-1 Aggregate Output (Continued) Figure 11.2 Happiness and income per person across countries Source: World Values Survey, 1999–2000 Wave -Sovietic block -General positive relation -Little relation for rich countries -Difficult to interpret cross-section measures of happiness Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.25 Because it is a measure of aggregate activity, GDP is obviously the most important macroeconomic variable. But two other variables tell us about other important aspects of how an economy is performing: •  Unemployment •  Inflation 2-2 The Other Major Macroeconomic Variables The Unemployment Rate Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.26 •  Employment is the number of people who have a job. •  Unemployment is the number of people who do not have a job but are looking for one. •  The labour force is the sum of employment and unemployment: L = N + U Labour force = Employment + Unemployment 2-2 The Other Major Macroeconomic Variables (Continued) The Unemployment Rate Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.27 •  The unemployment rate is the ratio of the number of people who are unemployed to the number of people in the labour force: L Uu = -Constructing u is less obvious than you might think! -The Labor Force Survey (LFS) is used to compute u in Europe. -The Current Population Survey (CPS) is used to compute u in USA. Unemployment rate = Unemployment/Labour force 2-2 The Other Major Macroeconomic Variables (Continued) The Unemployment Rate Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.30 The Unemployment Rate Figure 2.3 Unemployment rates in the euro area, UK and USA since 1993 Since 1993, the unemployment rate has fluctuated between 4% and 11%, going down during expansion and going up during recessions Source: OECD Economic Outlook database, July 2009 2-2 The Other Major Macroeconomic Variables (Continued) Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.31 Figure 7.2 The participation rate of men and women in Europe, 2008 Source: Eurostat 7-1 A Tour of the Labour Market (Continued) Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.32 •  Economists care about unemployment for two reasons: •  Because of its direct effects on the welfare of the unemployed. •  Because it provides a signal that the economy may not be using some of its resources efficiently. The Unemployment Rate Why do Economists Care About Unemployment? 2-2 The Other Major Macroeconomic Variables (Continued) Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.35 ( )P P P t t t − − − 1 1 $Y PYt t t= The rate of change in the GDP deflator equals the rate of inflation: Nominal GDP is equal to the GDP deflator multiplied by real GDP: The Inflation Rate The GDP Deflator 2-2 The Other Major Macroeconomic Variables (Continued) Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.36 •  The GDP deflator measures the average price of output, while the consumer price index, or CPI, measures the average price of consumption, or equivalently, the cost of living. •  The CPI gives the cost in dollars of a specific list of goods and services over time, which attempts to represent the consumption basket of a typical urban consumer. The Consumer Price Index The Inflation Rate 2-2 The Other Major Macroeconomic Variables (Continued) Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1st Edition, © Pearson Education Limited 2010 Slide 2.37 The set of goods produced in the economy is not the same as the set of goods purchased by consumers, for two reasons: •  Some of the goods are sold to firms, to the government or to foreigners. •  Some of the goods are not produced domestically but are imported from abroad. The Consumer Price Index The Inflation Rate 2-2 The Other Major Macroeconomic Variables (Continued)