What is macroeconomics about? -...
Transcript of What is macroeconomics about? -...
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1 GDP
What is macroeconomics about?
• Macroeconomics studies the aggregate effects ofwhat people do.
• Most of what people do has to do with:(i) the production and use (allocation) of goods
(goods means “goods and services”);(ii) the issuance and allocation (resale, trading,
exchange) of financial assets.
• The activities related to (i) give rise to the realsector of an economy. Those related to (ii) give riseto the financial sector.
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2 GDP
Wealth
• Wealth refers to, and is measured in terms of,goods. More wealth means having a higher amountof goods (to consume or to produce more goods).
• Aggregate production generated in economy du‐ring a given period of time can be used to mea‐sure the aggregate wealth created in during .
• A common measure of aggregate production is thegross domestic product ( ): (market) value of allthe final goods (= not used to produce other goods)produced in an economy in a given period of time.
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and the size of an economyis a crude measure of how rich and how big an
economy is. It excludes black market activities(underground or shadow economy = legal econo‐mic activity that is not taxed) and does not valuegoods that are not exchanged in markets (quality ofeducation, social institutions, leisure time…).
• Nominal values production at current prices.Real ( at constant prices or adjustedfor inflation) values production each period usingthe prices of one period (called “base period”).Changes in nominal are misleading: they mayreflect changes in production and prices.
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Size of the shadow economy 2012 (% GDP)Friedrich Schneider, www.econ.jku.at/members/.../ShadEcEurope31.pdf
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5 GDP
Shadow economy in Spain(% of GDP)Jordi Sardà: “La economíasumergida pasa factura” (2014)www.gestha.es
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6 GDP
“Good” or “bad” for the economy? /1• The outcomes (or the state) of an economy aresubject to assessment: is it “good” or “bad” to havemore (or less) shadow economy?
• There is in general no clear‐cut answer: someoutcomes/states may be favourable to some peopleand, simultaneously, detrimental to other people.
• Shadow economy: favours those taking part (theydo not pay taxes); is detrimental to the rest (unfaircompetition to rival firms and probably a highertax burden for the non‐participants in the shadoweconomy, to compensate tax evasion).
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“Good” or “bad” for the economy? /2• A high interest rate is more beneficial to lendersthan a lower one, as they receive more for lendingmoney. Yet, borrowers are worse off with a higherthan with a lower interest rate, since they have topay more for getting a loan of money. Better highor low depends on the importance of each group.
• It is easier for European exporters to export to theUS the lower the exchange rate (expressed in $/€),since the lower the rate, the more euros Americansget from 1 $. But the lower the rate, the fewer thedollars Europeans consumers obtain from 1 €, sothe more costs (in euros) buying American goods.
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8 GDP
GDP (US$ trillions) ∙ 7 February 2014http://www.tradingeconomics.com
1.8
15.6USA
1.1
0.47
2.4
2.63.4
2
0.38
0.26
0.018
0.57 1.8
0.8
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5.91.18.2
2
0.7
0.52
2.4
0.240.25
1.34Ranking: 14
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9 GDPhttp://www.tradingeconomics.com ∙ 7 February 2014
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10 GDP
Computing : an example
(nominal ) at is (monetary units of ).
at is(monetary units of ). From to ,
has increased a .
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11 GDP
Computing : an example
(real ) in period at constant pricesof period is
(monetary units of ). So = at thebase period (this always happens).
in at constant prices of period isgiven by (mo‐netary units of ). has fallen a .
• With base period : in isin is
. has fallen a .
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Strategic use of data• Economic variables are meaningless withoutspecifying its units of measurement (if any).
• On the other hand, people whose interests areaffected by economic information may have anincentive to disclose information selectively.
• In the previous example, a government isinterested in informing citizens of only the increasein nominal . The opposition would instead liketo point to the fall in real . And if forced tomention real , the government prefers to takeperiod 2 as the base (smaller reduction of real ).
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13 GDP
Nominal variable
• A nominal variable is measured in terms of currentprices.
• Changes of current prices may affect the nominalvariable.
• The typical nominal variable is measured in(current) monetary units.
• Examples: at current prices, money stock,(nominal) interest rate, (nominal) exchange rate,and consumser price index ( ).
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14 GDP
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GDP‐SPAIN
GDP‐CATALONIA
CONSUMPTION‐CATALONIA
CONSUMPTION‐SPAIN
GDP & consumpion(current prices, EUR trillion)
http://www.idescat.cat/economia/inec?tc=5&id=5107&dt=201200&lang=e
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Real variable
• A real variable measures physical quantities. Realvariables are not affected by current prices.
• Some real variables, like total employment or theunemployment rate, need no price to be defined.
• Others are defined by fixing prices, like atconstant prices, which measures production usingthe prices of a base period.
• Still others come from nominal variables by remo‐ving the effects of prices, like the real interest rate.
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16 GDP
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NOMINAL GDP
REAL GDP
Spain, GDP (billions of pesetas)http://www.ine.es/daco/daco42/daco4214/cntrb86.xls
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NOMINAL GDP
REAL GDP
REAL CONSUMPTION
NOMINALCONSUMPTION
Spain, GDP & consumption (billions of pesetas)http://www.ine.es/daco/daco42/daco4214/cntrb86.xls
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18 GDP
Spain, GDP (billions of US dollars)http://www.tradingeconomics.com/spain/gdp
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Spain, GDP at constant prices (EUR billion)http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weoselgr.aspx
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20 GDP
0100200300400500600700800900100011001200130014001500160017001800190020002100220023002400250026002700
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GDP at constant prices (EUR billion)http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weoselgr.aspx
FRA
GER
SPA
ITA
GRE
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21 GDP
Stock variable vs flow variable
• A stock variable is measured in levels rather thanrates of change.
• A flow variable is measured in rates per unit oftime rather than levels.
is a flow variable, as it measures productionduring a period of time (so is production perunit of time).
• Population at a given moment of time is a stockvariable. Wealth is also a stock variable.
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22 GDP
Rates• The term “rate” in “ growth rate” refers to arelative (in percentage terms) change in .
• This formula gives the rate of change per one. Toget a percentage, multiply by 100. Ifand , the rate of change is
(per one); that is, %.
• “Rate” in “exchange rate” means “ratio” (relativeprice) and “amount” in “interest (or wage) rate”.
(from period to )
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23 GDP
Spain, real GDP annual growth rate (quarterly, % change)http://www.tradingeconomics.com/spain/gdp‐growth‐annual
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24 GDP
‐5,5‐5
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‐1,5‐1
‐0,50
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Spain, real GDP growth (quarterly, % change)http://www.ine.es/jaxiBD/tabla.do?per=03&type=db&divi=CNTR&idtab=9#nogohttp://www.ine.es/jaxi/menu.do?type=pcaxis&path=%2Ft35/p009&file=inebase&L=0
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25 GDP
‐18
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CATALONIA
AGRICULTURE
INDUSTRY CONSTRUCTION
SERVICES
SPAIN
Real GDP growth(quarterly, % annual change)http://www.idescat.cat/economia/
inec?tc=5&id=0007&dt=201303
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26 GDP
‐18‐17‐16‐15‐14‐13‐12‐11‐10‐9‐8‐7‐6‐5‐4‐3‐2‐1012345678910
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CATALONIA
INDUSTRYCAT‐SPA
CONSTRUCTIONCAT‐SPA
SERVICESCAT‐SPA
SPAIN
Real GDP growth(quarterly, % annual change)http://www.idescat.cat/economia/inec?tc=5&id=0007&dt=201303
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27 GDP
‐11‐10‐9‐8‐7‐6‐5‐4‐3‐2‐10123456789
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ARG
CHINA
GREECE
SPA
GDP at constant prices (% change)http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weoselgr.aspx
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28 GDP
‐5,5‐5
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US
SPAINGERMANY
GDP at constant prices (% change)http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weoselgr.aspx
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29 GDP
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GREECE
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SPAIN
JAPAN
GDP at constant prices (% change)http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weoselgr.aspx
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30 GDP
GDP growth rate (annual, %) ∙ 7 February 2014http://www.tradingeconomics.com
3.74.1
4.4-3-1.8-0.1
0.21.1
4.92.8
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1.9
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12.4Nicaragua 5.1
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7.6
4.5
7.6
1.8
8.1
-0.6
1
3.5
2.3
5.7
2.43.97.7
4.8
1.2
11.56
3.1
-55.8South Sudan
-5.5
95.5Libya
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31 GDP
http://w
ww.tradingecono
mics.com
∙ 7 Feb
ruary 2014
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32 GDP
http://w
ww.tradingecono
mics.com
∙ 7 Feb
ruary 2014
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33 GDP
Potential GDP and output gap
• Potential (or “natural”) refers to the maximumlevel that an economy can sustain over time.
• The output gap is the difference between potentialand actual . It could be viewed as a
measure of the degree to which an economy isperforming well.
• When is below potential, some productioninputs must lie idle (remain unused). The more it isbelow, the higher unemployment is expected to be.
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34 GDP
‐5
‐4,5
‐4
‐3,5
‐3
‐2,5
‐2
‐1,5
‐1
‐0,5
0
0,5
1
1,5
2
2,5
3
3,5
4
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Spain, output gap (% of potential GDP)http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weoselgr.aspx
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35 GDP
Average wealth
• Real GDP per capita provides a measure of howdeveloped or “prosperous” an economy is. It canbe interpreted as a measure of the averagestandard of living in the economy.
• Real GDP per capita is defined as the ratio of realGDP to the population of the economy.
• Real GDP per capita is positevely correlated withmany indicadors of economic development and thequality of life: life expectancy, subjective well‐being, education, health care expenditure…
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36 GDP
GDP per capita strongly correlatedwith Human Development Indexhttp://en.wikipedia.org/wiki/Human_Development_Index
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37 GDP
0
2500
5000
7500
10000
12500
15000
17500
20000
22500
25000
27500
30000
32500
35000
37500
40000
42500
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
US
GDP per capita (current prices & exchange rates, EUR per person)http://www.bde.es/webbde/es/estadis/ccff/csvs/cf0319.csv
EUROPEANUNION
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38 GDP
0
2500
5000
7500
10000
12500
15000
17500
20000
22500
25000
27500
30000
32500
35000
37500
40000
42500
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
JAPAN
EUROPEANUNION
GDP per capita (current prices & exchange rates, EUR per person)http://www.bde.es/webbde/es/estadis/ccff/csvs/cf0319.csv
US
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39 GDP
0
2500
5000
7500
10000
12500
15000
17500
20000
22500
25000
27500
30000
32500
35000
37500
40000
42500
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
GDP per capita (current prices & exchange rates, EUR per person)http://www.bde.es/webbde/es/estadis/ccff/csvs/cf0319.csv
EUROPEANUNION
JAPAN
GERMANY
US
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40 GDP
0
2500
5000
7500
10000
12500
15000
17500
20000
22500
25000
27500
30000
32500
35000
37500
40000
42500
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
GERMANY
SPAIN
JAPAN
EUROPEANUNION
GDP per capita (current prices & exchange rates, EUR per person)http://www.bde.es/webbde/es/estadis/ccff/csvs/cf0319.csv
US
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41 GDP
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
22000
24000
26000
28000
30000
32000
1870
1873
1876
1879
1882
1885
1888
1891
1894
1897
1900
1903
1906
1909
1912
1915
1918
1921
1924
1927
1930
1933
1936
1939
1942
1945
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
USAGDP per capita 1870‐2008 (1990 IGK dollars)http://www.ggdc.net/maddison/Historical_Statistics/horizontal‐file_02‐2010.xls
WESTERNEUROPE
SPAIN
WORLD
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42 GDP
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
11000
12000
13000
14000
15000
16000
17000
18000
19000
20000
1913
1915
1917
1919
1921
1923
1925
1927
1929
1931
1933
1935
1937
1939
1941
1943
1945
1947
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
GDP per capita 1913‐2008 (1990 IGK dollars)http://www.ggdc.net/maddison/Historical_Statistics/horizontal‐file_02‐2010.xls
SPAIN
CANADA
ARGENTINA
CHINA
BRAZIL
INDIA
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43 GDP
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
11000
12000
13000
14000
15000
16000
17000
18000
19000
20000
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
GDP per capita 1950‐2008 (1990 IGK dollars)http://www.ggdc.net/maddison/Historical_Statistics/horizontal‐file_02‐2010.xls
SPAIN
AFRICAASIA
WORLD
FORMERUSSR
LATIN AMERICA
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44 GDP
Short run vs long run
• “Short run” refers to a relative short period of time(a few months to a couple of years). In that periodit is presumed that some factors or variables(technology, population) are essentially constant.
• Short‐run macroeconomics focuses on explainingthe oscillations of real (the business cycle).
• In the long run everything may change. Long‐runmacroeconomics tries to explain the evolution ofreal per capita (long‐run economic growth).
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45 GDP
3,000 years of world economic history in one chartGregory Clark (2007): A farewell to alms. A brief economic history of the world, p. 2
Crucial factor:rate of technological advance?
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46 GDP
Competing conceptual frameworks• (Neo)Classical economists contend that markets work well by themselves (produce fullemployment without government help) in aworld of rational and perfectly informed agents; money is neutral (more money only meanshigher inflation) and exogenous; only supply matters in the long‐run.
• Post[‐]Keynesians hold the opposite: crucial role ofuncertainty; need to regulate markets (they areunstable); endogeneity of money; demand alwaysmatters; importance of the distribution of wealth.
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47 GDP
On “economic reality”• Physicists face the problem that the act of knowingreality changes reality: “seeing” a particle requiresinteracting with it, and the interaction alters the(characteristics of the) particle.
• The understanding economic reality presumes aconceptual framework that guides our interactionwith reality and within which reality is interpreted.
• The same reality may be interpreted differently inalternative frameworks. What is “actually” thechange in real on slide 10? What is “actually”depicted on the next three slides?
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48 GDP
Old woman or young lady?Steven Mark Cohn (2006) Reintroducing macroeconomics, p. 5
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49 GDP
The Necker cubeDaniel Reisberg (2009)Exploring the science of mind, p. 62
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50 GDP
The vase/profiles figureDaniel Reisberg (2009) Exploring the science of mind, p. 63
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51 GDP
Hidden figure: is it “really” there or are we making it up?(Does the answer depend on whether you know English?)
Daniel Reisberg (2009) Exploring the science of mind, p. 64
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52 GDP
Price indices
• A price index is a measure of the general price levelof an economy. This level can be thought of as aweighted average of the prices of all the goods.
• By assuming the fiction that there is a unique goodin the economy (the domestic product), if
measures the quantity of the good, then theprice level would represent the price of the good.
• As distinguished from , price indices have nounits and the value by itself means nothing. It isthe rate of change of the index that is informative.
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53 GDP
The (implicit price) deflator
• The deflator is a price index defined as
• It measures the changes in prices in all the goodsproduced in an economy between the base periodused in the real and the current period.
• If andthen
and indicating ageneral price increase.
.
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54 GDP
Consumer price index
• The is a measure on the cost of purchasing afixed basket of goods of a consumer consideredrepresentative.
• The in period is defined as
• For the index to have base , just multiply theright‐hand side by .
.
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55 GDP
Differences between and deflator
• The generally includes imported goods.
• The deflator does not: it only includes thegoods produced in the economy, not abroad.
• The basket of goods in the deflator may varyfrom period to period.
• The basket in the generally does not.
• Despite all that, both indices are strongly correlatedand tend to move in parallel.
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56 GDP
0
10
20
30
40
50
60
70
80
90
100
110
120
130
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
CPI
GDP DEFLATOR
Spain, CPI and GDP deflatorhttp://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weoselgr.aspx
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57 GDP
Computing a : an example
• The basket is given by
• Taking as the base period,; ;
; and .
5
5
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58 GDP
Inflation rate
• The inflation rate associated with the price indexis the rate of change of the price index :
where is the price index in the current period andis the one in the immediately preceding period.
• To express the inflation rate as a percentage,multiply by the right‐hand side. For instance, if
and , then: the price index has been pushed up a .
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59 GDP
‐1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
CPI INFLATION RATE
GDP DEFLATOR INFLATION RATE
Spain, CPI inflation rate and GDP deflator inflation ratehttp://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weoselgr.aspx
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60 GDP
Spain, CPI inflation rate(% anual change)
Spain, CPI (index)
http://w
ww.tradingecono
mics.com/spain/con
sumer‐price‐index‐cp
http://w
ww.tradingecono
mics.com/spain/in
flatio
n‐cp
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61 GDP
Inflation rate: an example• Let be the inflation rate associated with theof the previous example (slide ). In this case: is not defined (since there is no )
.
. .
.
• If is calculated, for instance, from to ,then → = .
.
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62 GDP
Inflation rate ∙ 7 February 2014http://www.tradingeconomics.com
1.2
1.5
4
10.9
5.9
56.1Venezuela
3.1 2
2
0.1
0.70.2
0.4 49.5
2.7
8.22
1.61.12.5
12.5
6.1
35.5
29.411.7
15.331.3
6.1
1.8
5.25
8
-1.77.750.7
-8.8Sudan del Sud
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63 GDPhttp://w
ww.tradingecono
mics.com
∙ 7 Feb
ruary 2014
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64 GDPhttp://w
ww.tradingecono
mics.com
∙ 7 Feb
ruary 2014
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65 GDP
Inflation concepts
• As an economic phenomenon, inflation refers tothe sustained increase of the . It occurs forperiods during which the inflation rate is positive.
• Deflation is the opposite phenomenon: sustaineddecrease of the (negative inflation rates).
• Disinflation takes place when, during inflation, theinflation rate diminishes (but remains positive).
• Hyperinflation occurs with astronomical inflationrates (montly inflation rates of at least ). Undera hyperinflation, inflation is out of control.
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66 GDP
‐2‐101234567891011121314151617181920212223242526272829
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
1969
1968
1967
1966
1965
1964
1963
1962
Spain, inflation rateJanuary 1962 – December 2013 (% annual change)
http://www.ine.es/jaxiBD/menu.do?L=0&divi=IPC&his=5&type=db
January 2014 : 0.2%
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67 GDP
‐1,5
‐1
‐0,5
0
0,5
1
1,5
2
2,5
3
3,5
4
4,5
5
5,5
6
6,5
7
7,5
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
Spain, inflation rateJanuary 1990 – December 2013 (% annual change)
http://www.ine.es/jaxiBD/menu.do?L=0&divi=IPC&his=5&type=db
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68 GDP
‐2
‐1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
1979
M01
1980
M01
1981
M01
1982
M01
1983
M01
1984
M01
1985
M01
1986
M01
1987
M01
1988
M01
1989
M01
1990
M01
1991
M01
1992
M01
1993
M01
1994
M01
1995
M01
1996
M01
1997
M01
1998
M01
1999
M01
2000
M01
2001
M01
2002
M01
2003
M01
2004
M01
2005
M01
2006
M01
2007
M01
2008
M01
2009
M01
2010
M01
2011
M01
2012
M01
2013
M01
Spain, Catalonia, inflation rateJanuary 1979 – December 2013 (% annual change)
http://www.ine.es/jaxiBD/tabla.do?per=01&type=db&divi=IPC&idtab=124
CATALONIA
SPAIN
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69 GDP
‐1,5
‐1
‐0,5
0
0,5
1
1,5
2
2,5
3
3,5
4
4,5
5
5,5
6
1993
M01
1994
M01
1995
M01
1996
M01
1997
M01
1998
M01
1999
M01
2000
M01
2001
M01
2002
M01
2003
M01
2004
M01
2005
M01
2006
M01
2007
M01
2008
M01
2009
M01
2010
M01
2011
M01
2012
M01
2013
M01
Spain, Catalonia, inflation rateJanuary 1993 – December 2013 (% annual change)http://www.ine.es/jaxiBD/tabla.do?per=01&type=db&divi=IPC&idtab=124
SPAIN
CATALONIA
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70 GDP
‐1,5
‐1
‐0,5
0
0,5
1
1,5
2
2,5
3
3,5
4
4,5
5
5,5
2003
M01
2003
M07
2004
M01
2004
M07
2005
M01
2005
M07
2006
M01
2006
M07
2007
M01
2007
M07
2008
M01
2008
M07
2009
M01
2009
M07
2010
M01
2010
M07
2011
M01
2011
M07
2012
M01
2012
M07
2013
M01
2013
M07
Spain, Catalonia, inflation rateJanuary 2003 – December 2013
(% annual change)
http://www.ine.es/jaxiBD/tabla.do?per=01&type=db&divi=IPC&idtab=124
SPAIN
CATALONIA
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71 GDP
Core inflation rate• The core (as opposed to headline) inflation rate iscomputed by excluding the prices of food andenergy prices, which tend to be very volatile.
• It is a measure of underlying long‐term inflation. Itcan also be used as an indicator of future inflation.
http://www.tradingeconomics.com/spain/core‐inflation‐rate
Spain, core inflation rate(% annual change)
http://www.tradingeconomics.com/spain/core‐inflation‐rate
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72 GDP
Spain, core inflation rate(% annual change)
Spain, CPI inflation rate(% annual change)
http://www.tradingeconomics.com/spain/inflation‐cpi
http://www.tradingeconomics.com/spain/core‐inflation‐rate