Ch 1 macro
Transcript of Ch 1 macro
Chapter 2: A Tour of the Book Slide #1Blanchard: Macroeconomics
Chapter TopicsChapter Topics
Aggregate Output The Other Major Macroeconomic Variables
Chapter 2: A Tour of the Book Slide #2Blanchard: Macroeconomics
Aggregate OutputAggregate Output
Gross Domestic Product (GDP)The value of the final goods and services produced in an economy during a given period
Y = C + I + G + X - Im
Aggregate Output (national income and product accounts, or NIPA)
Chapter 2: A Tour of the Book Slide #3Blanchard: Macroeconomics
Aggregate OutputAggregate Output
1) Final good
2) Value added
3) Income
Defining GDP: Three Approaches
Chapter 2: A Tour of the Book Slide #4Blanchard: Macroeconomics
Aggregate OutputAggregate OutputFirm 1: Steel Company
Revenues from sales $100Expenses (wages) $80Profit $20
Firm 2: Car CompanyRevenues from sales $210Expenses $170
Wages $70Steel purchases $100
Profit $40
What is GDP?$310 or $210
GDP: The final goods approach
Chapter 2: A Tour of the Book Slide #5Blanchard: Macroeconomics
Aggregate OutputAggregate Output
($110) cars added value ($100) steel added Value ($210) GDP
Two Firm Example
Chapter 2: A Tour of the Book Slide #6Blanchard: Macroeconomics
Aggregate OutputAggregate Output
GDP from the income side
incom e capital incom e labor taxes indirect (incom e) GDP
Defining GDP
Chapter 2: A Tour of the Book Slide #7Blanchard: Macroeconomics
Income (steel) Labor = $80 Capital = $20 $100
Income (car) Labor = $70 Capital = $40 $110 $210 $110 $100 (incom e) GDP
Aggregate OutputAggregate Output
($110) car added value ($100) steel added value -$210)-added (value GDP
Compared to:
Chapter 2: A Tour of the Book Slide #8Blanchard: Macroeconomics
Aggregate OutputAggregate Output
GDP = Price x Quantity of final goods produced
If price increases and quantity remains constant, the $ value of final output increases.But real output hasn’t changed.
Nominal & Real GDP
Chapter 2: A Tour of the Book Slide #9Blanchard: Macroeconomics
Nominal and RealNominal and RealU.S. GDP, 1960-1998U.S. GDP, 1960-1998
Chapter 2: A Tour of the Book Slide #10Blanchard: Macroeconomics
Aggregate OutputAggregate Output
Real GDP = value of final goods in constant prices
The increase in real GDP is less than nominal GDP when prices are rising
More variation in real GDP than nominal GDP
Observations
Chapter 2: A Tour of the Book Slide #11Blanchard: Macroeconomics
Aggregate OutputAggregate Output
Real GDPGDP in terms of goodsGDP in constant dollarsGDP adjusted for inflationGDP in 1992 dollars
Synonyms for GDP Accounting
Chapter 2: A Tour of the Book Slide #12Blanchard: Macroeconomics
Aggregate OutputAggregate Output
GDP -- refers to real GDP Yt -- real GDP in year t $GDP -- nominal GDP $Yt = nominal GDP in year t
Technical Notes: For the Course
Chapter 2: A Tour of the Book Slide #13Blanchard: Macroeconomics
The Other MajorThe Other MajorMacroeconomic VariablesMacroeconomic Variables
)( force labor)( unem ployed num ber )( Rate ntUnem ploym e
LUu
)(unem ployed )( em ployed )( Force Labor UNL
The Unemployment Rate
Chapter 2: A Tour of the Book Slide #14Blanchard: Macroeconomics
Current population survey60,000 households monthlyEmployed -- job holdersUnemployed -- job seekers
The Other MajorThe Other MajorMacroeconomic VariablesMacroeconomic Variables
Counting the Unemployed
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1998
)6.2( )( 131.4)( 6.2 4.5%
6.2 131.4
UNUu
UN
The Other MajorThe Other MajorMacroeconomic VariablesMacroeconomic Variables
Counting the Unemployed
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Unemployed and Discouraged Workers
)(16 population adult)( force labor Rate ionParticipat
L
The Other MajorThe Other MajorMacroeconomic VariablesMacroeconomic Variables
Macro Terms
Chapter 2: A Tour of the Book Slide #17Blanchard: Macroeconomics
The Other MajorThe Other MajorMacroeconomic VariablesMacroeconomic Variables
Okun’s LawHigh output growth -- reduces unemployment
Low output growth -- increases unemployment
Unemployment and Economic Activity
Chapter 2: A Tour of the Book Slide #18Blanchard: Macroeconomics
Change in the U.S. Unemployment Change in the U.S. Unemployment Rate versus U.S. GDP Growth 1960 - Rate versus U.S. GDP Growth 1960 -
19981998
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The Other MajorThe Other MajorMacroeconomic VariablesMacroeconomic Variables
The Inflation RateA sustained rise in the price level
Two Measures of the Price LevelGDP DeflatorConsumer Price Index (CPI)
Chapter 2: A Tour of the Book Slide #20Blanchard: Macroeconomics
The Other MajorThe Other MajorMacroeconomic VariablesMacroeconomic Variables
Average price of final goods produced
GDP deflator in year t = Pt
t
t
t
tt Y
$YP GDP RealGDP nom inal
The GDP Deflator
Chapter 2: A Tour of the Book Slide #21Blanchard: Macroeconomics
The Other MajorThe Other MajorMacroeconomic VariablesMacroeconomic Variables
Pt is an index number•P1993 = 102.6 (1992 = 100)
Index numbers are used to measure rate of change over time
t 1- t
1- t t PP
PP
% inflation of Rate
The GDP Deflator
Chapter 2: A Tour of the Book Slide #22Blanchard: Macroeconomics
The Other MajorThe Other MajorMacroeconomic VariablesMacroeconomic Variables
t
t t Y
YP $
ttt YP Y $
The GDP Deflator
Chapter 2: A Tour of the Book Slide #23Blanchard: Macroeconomics
The Other MajorThe Other MajorMacroeconomic VariablesMacroeconomic Variables
Average prices of goods consumed The CPI is not equal to the GDP deflatorSome final goods are sold to business, government, and foreigners
Some consumer goods are imported
The Consumer Price Index (CPI)
Chapter 2: A Tour of the Book Slide #24Blanchard: Macroeconomics
The Other MajorThe Other MajorMacroeconomic VariablesMacroeconomic Variables
1) Consumer expenditure survey to determine a market basket of items
2) Bureau of labor statistics (BLS) field workers price the items monthly (85 cities, 22,000 stores)
3) A base period is chosen, currently 1982-844) End 2001 CPI = 177.4 (1982-84 = 100) A basket of goods that cost $100 in 1982 –
84 cost $177.40 at end of 2001. The price of the representative consumer
good increased by 77.4% over this period.
Steps in Calculating the CPI
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Inflation Rate, Using the CPIInflation Rate, Using the CPIand the GDP Deflator, 1960, and the GDP Deflator, 1960,
19981998
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Change in the U.S. Inflation Rate Change in the U.S. Inflation Rate versus the U.S. Unemployment Rate, versus the U.S. Unemployment Rate,
1970-19981970-1998
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The Other MajorThe Other MajorMacroeconomic VariablesMacroeconomic Variables
Low unemployment --inflation rate increases
High unemployment -- inflation rate decreases
The Phillips Curve
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What determines the level of aggregate output?Demand?Supply?Government, education, and savings?•Short-run (a few years) demand•Medium-run (10+ years) supply•Long-run (50+ years) government, education, savings
The Central Question of Macroeconomics