Measuring the Macroeconomy Source:Text and Taylor and Moosa (2002) Chapters 21 & 6 Respectively.
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Transcript of Measuring the Macroeconomy Source:Text and Taylor and Moosa (2002) Chapters 21 & 6 Respectively.
Measuring Measuring the the
MacroeconoMacroeconomymy
Source:Text Source:Text and Taylor and Taylor and Moosa and Moosa
(2002)(2002)Chapters 21 & 6
Respectively
Gross Domestic ProductGross Domestic Product
GDP is a measure of the value of all final goods and services newly produced in a country during some period of time.
What? What? Where? Where?
When? When? How?How?
ProductProduct WeightWeight ValueValue
Adding Unlike ProductsAdding Unlike Products
7 tapes+ 3 CDs
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$70 worth of tapes+ $75 worth of CDs
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$145 of tapes & CDs
Table 6.1
Intermediate & Final Intermediate & Final GoodsGoods
Intermediate goodsGoods that undergo further processing before being sold to consumers
Final goodsNew goods that undergo no further processing before being sold to consumers
Double counting problem
Three Ways to Measure Three Ways to Measure GDPGDP
Spending approach
Income approach
Production approach
Spending CategoriesSpending Categories
Consumption» Purchases of final
goods & services by individuals
Investment» Business fixed
investment» Inventory investment» Residential
investment
Government purchases» Purchases by
Federal, State & local governments of new goods & services
Net exports
Trade TerminologyTrade Terminology
ExportsThe total value of goods & services that people in one country sell to people in other countries
ImportsTotal value of purchases of goods & services from people in other countries
Net exportsThe value of exports minus the value of imports
Trade balanceAlias for net exports
Consumption $333.4Investment 113.4Government purchases 124.0Net exports -4.8GDP $566.0
Australian Spending in Australian Spending in 19981998
Table 6.2
The Spending ApproachThe Spending Approachin Symbolsin Symbols
If YY = GDP
CC = Consumption
II = Investment
GG = Government purchases
XX = Net exports
thenY = C + I + G + XY = C + I + G + X
CC, , II & & GG as a Share of as a Share of GDPGDP
59
20
22
0102030405060708090
100110
Pe
r C
en
t o
f G
DP
CC
II
GG
Fig 6.3
Excess spendingover production= trade deficit
Stocks and FlowsStocks and Flows
FlowsFlowsRate in
Rate outYCIGXS
StocksStocksWater level
Money stockCapital
InventoryDebt levelPopulation
Wealth
The Income ApproachThe Income Approach
Labour incomeThe sum of wages, salaries and supplements paid to workers
Capital incomeThe sum of profits, rental payments and interest payments
Aggregate Income &Aggregate Income &GDP in 1998GDP in 1998
Labour income $270.3 Capital and mixed 230.8equals GDP at factor cost 501.1 Indirect taxes less subsidies 64.9equals GDP $566.0
Table 6.3
Gross Versus NetGross Versus Net
DepreciationThe amount by which physical capital wears out over time
InvestmentGross investment - depreciation
= net investment GDP versus NDP
Y
X
GC
The Circular FlowThe Circular Flow
Fig 6.4
Tr
Tax
ConsumersGovernmentI
C+GC+I+G
C+
I+G
+X
Rest of theworld
Firms
Ex PostEx Post Relationships Relationships
GDP = GDP = ProductionProduction
ororOutputOutput
= Income= Income
= Spending = Spending (Consumption+Investmen(Consumption+Investment+Gov. Spending+Net t+Gov. Spending+Net Export)Export)Y = C + I + G + XY = C + I + G + X
IncomeIncome
National incomeThe sum of labour income and capital income
Personal incomeIncome paid directly to individuals; includes labour income, transfer payments and the part of capital income that is paid out to individuals
Value AddedValue Added
The value of the firm’s production minus the value of the intermediate goods used in production.
Calculating Value Calculating Value AddedAdded
Coffeegrower
Coffeeroaster
Coffeeshipper &wholesaler
Coffeeretailer
PRetail
Fig 6.5
VAG
VARo
VASW
VARe
$ Retail price = sum of all values Retail price = sum of all values addedadded
Sector/ActivitySector/Activity Gross Value AddedGross Value Added($Billion)($Billion)
Australia’s GDP in 1998 Australia’s GDP in 1998 ......
Agriculture, forestry & fishingMiningManufacturing industryElectricity, gas and waterConstructionWholesale tradeRetail tradeAccommod., cafes & restaurantsTransport and storageCommunication services
17.526.171.213.632.829.030.012.230.617.2
Table 6.4 ...
Sector/ActivitySector/Activity Gross Value AddedGross Value Added
… … Australia’s GDP in Australia’s GDP in 19981998
Finance and insuranceProperty and business servicesGovernment admin. & defenceEducationHealth and community servicesCultural and recreational servicesPersonal and other servicesOwnership of dwellingsGross value added at basic pricesTaxes and subsidiesGDP
35.155.023.525.932.59.7
12.551.2
525.640.4
566.0
… Table 6.4
SPSG
I
Saving and the Circular FlowSaving and the Circular Flow
Fig 6.4
S
S - I
Y
X
GC
Tr
Tax
ConsumersGovernmentI
C+GC+I+G
C+
I+G
+X
Rest of theworld
Firms
SavingSaving
Private saving
SP = Y - C - T
Government saving
SG = T - G
National saving
S = SP + SG
S = Y - C - GS = Y - C - G
Saving, InvestmentSaving, Investmentand Net Exportsand Net Exports
Y = C + I + G + X
Y - C - G = I + X
But S = Y - C - G
S = I + X
National saving = National saving = investment + investment + net exportsnet exports
Nominal and Real GDPNominal and Real GDP
Nominal GDPNominal GDP
The value of all goods and services newly produced in a country during some period of time
Real GDPReal GDP
The value of all goods and services newly produced in a country during some period of time, adjusted for inflation
Nominal or Real GDP?Nominal or Real GDP?
Nominal GDP in 1999 = 25 x 1000 + 10 x 2000 = $45 000Nominal GDP in 2000 = 30 x 1200 + 15 x 2200 = $69 000
Using 1999 prices:1999 Real GDP = $45 0002000 Real GDP = $52 000
Using 2000 prices:1999 Real GDP = $60 0002000 Real GDP = $69 000
53%
16% 15%
19991999 20002000PricePrice PricePriceQuantityQuantity QuantityQuantity
CDsCDsTapesTapes
$25$10
10002000
$30$15
12002200
Real GDP Versus Real GDP Versus Nominal GDPNominal GDP
0
100
200
300
400
500
600
700
1960 1965 1970 1975 1980 1985 1990 1995 2000
Bil
lio
ns
of
do
llar
s
Fig 6.6
Nominal GDPNominal GDP
RealRealGDP in 1998 $GDP in 1998 $
Price LevelPrice Level
A measure of the average level of prices of goods and services in the economy
Price level indexes:» Consumer price index» GDP deflator
GDP DeflatorGDP Deflator
Measures the level of prices of all goods and services included in real GDP relative to a given base year
GDP deflator = nominal GDP / real GDPGDP deflator = nominal GDP / real GDP
real GDP = nominal GDP / GDP deflatorreal GDP = nominal GDP / GDP deflator
Implicit Price Deflator Implicit Price Deflator (IPD)(IPD)
A GDP price deflator that the ABS calculates by dividing nominal GDP by the chain volume measure of real GDP
Consumer Price IndexConsumer Price Index
A price index equal to the current price of a fixed market basket of consumer goods and services divided by the price of the same basket of goods in a base year
Measures of InflationMeasures of Inflation
0
2
4
6
8
10
12
14
16
18
20
1960 1970 1980 1990 2000
Infl
atio
n R
ate
(%
)
Fig 6.7
IDPIDP
CPICPI
Shortcomings of the GDP Shortcomings of the GDP MeasureMeasure
Revisions in GDP Production omitted
from GDP» Home work and
production» Leisure activity» The underground
economy» Product
improvements
Omits aspects of wellbeing» Life expectancy» Infant mortality» Car accidents» Social problems» Environmental
quality
International International ComparisonsComparisons
of GDPof GDP Problem with using market
exchange rates for comparisons Purchasing power parity
exchange ratesExchange rates such that the prices of similar baskets of goods in different countries are the same when measured in the same currency
CountryCountryPer capita incomePer capita income1998 Market ER1998 Market ER
Per capita incomePer capita income 1998 PPP ER1998 PPP ER
AustraliaBangladeshCanadaGermanyIndiaJapanNorwayRussiaU.K.
20 300350
20 02025 850
43032 38034 3302 300
21 400
International International ComparisonsComparisons
20 1301 100
24 05020 8101 700
23 18024 2903 950
20 640
Table 6.5