Lecture2ECON50202SkelLeft.pdf

Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Macroeconomic Data M. Saif Mehkari Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Introduction I Most of the models we will create in this course aim to explain the relationship between di erent macroeconomic statistics/data. I They also aim to explain how these statistics evolve over time. I So before we begin making models we must understand what the data really tells us. I There are many many macroeconomic data statistics that macroeconomists look at. I The three main statistics macroeconomists look at are: Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Introduction I Let us begin our discussion talking about output. Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Gross Domestic Product What is Gross Domestic Product (GDP) ? Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP - Market Value I When we measure output we don?t add up the quantity of goods produced. Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP - Market Value Let us do an example to further understand why we use market value: I First, suppose we just want to count the total number of goods to measure output. I Scenario 1: The economy produces 5 apples and 3 oranges. I Scenario 2: The economy produces 2 apples and 5 oranges. I Which scenario is better? I In which scenario do we have a larger output? I Which scenario generates a higher total bene t? Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP - Market Value Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP - Market Value I Now, let us go back to our two scenarios and see what the market value of the goods is. I Remember: I Apples cost $0.25 and oranges cost $0.50. I Scenario 1: The economy produces 5 apples and 3 oranges. I Scenario 2: The economy produces 2 apples and 5 oranges. I What is the market value of the goods in scenario 1? I What is the market value of the goods in scenario 2? I Now we have a way to compare the two scenarios. Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP - Market Value Unfortunately, not all goods have a market value. I Undocumented work has no market value. I Public goods like roads, the military, public schools have no market, and thus no market value. Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP - Final Goods and Services Now that we understand market value let us move onto why we only include nal goods and services in our GDP calculations. I Let us do an example: I Suppose an economy only produces one bread, by rst growing 1 lb of grain, then converting this 1 lb of grain into 1 lb of our, and then nally baking this 1 lb of our into one bread. I Also, suppose that the price of the bread is $3 per bread, the price of our is $2 per lb, and the price of grain is $1 per lb. I What is the GDP in this economy? Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP - Final Goods and Services I This is why we only count the nal goods and services in GDP, in this case the bread. I The market value of the grain is already built into the market value of our, and the market value of our, and thus also the grain, are built into the market value of bread. I GDP calculations only include the market value of nal goods and services and not intermediate goods and services. I As we just saw, the main reason is that if we include intermediate goods in GDP, then we would double count some goods in GDP. I In our previous example grain would be counted three times and our twice. Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP - Final Goods and Services Formally, Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP - Final Goods and Services I Sometimes an intermediate good is produced in one year, but used as an input into nal good production in another year. I Example: Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP - Final Goods and ServicesNotes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP - Final Goods and Services I Let us go over an example to understand the value added method better: Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP - Produced within a Country Only goods and services produced within the borders of a country count towards GDP. For example, think about U.S. GDP: Good & Services Count in GDP U.S. rm?s production in U.S. Foreign rm?s production in U.S. U.S. rm?s production in foreign country Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP - During a Given Period I If GDP is calculated yearly, only goods produced in that year are counted. I An example from the book: A 20 year old house is sold to a young family for $200,000. The family pays the real estate agent a 6 percent commission, or $12,000. What is the contribution of this transaction to GDP? Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Expenditure Method I GDP is a measure of all goods and services produced in the economy. I All goods and services produced by the economy will be eventually be purchased I So another way to calculate GDP is to calculate the total expenditure, that is, the total amount of money spent on goods. Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Expenditure Method I To calculate expenditure let us divide the users of nal goods into four categories: Let us look at what each of these includes in more detail. Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Expenditure Method - ConsumptionNotes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Expenditure Method - Investment Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Expenditure Method - GovernmentNotes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Expenditure Method - Net Exports Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Expenditure Method - Example Let us do an example: Calculate GDP given the following information: Consumption Durable goods 1079.6 Nondurable goods 2833.0 Services 5819.4 Investment Business xed investment 1483.2 Residential investment 641.5 Inventory investment 7.6 Government Purchases 2691.4 Net Exports Exports 1640.3 Imports 2353.0 Total Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Expenditure Method As a result of this we have a famous identity: Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Nominal GDP vs. Real GDP I In the period 1990-1991, U.S. GDP rose from $5803 billion to $5996 billion. I Does this imply the U.S. was better o ? More goods and services were produced? Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Nominal GDP vs. Real GDP Let us think about the following economy: Year Apples Oranges PApples POranges 2000 20 20 $1 $2 2005 15 15 $2 $4 I What was the GDP in 2000? I What was the GDP in 2005? I In which year is the economy producing more? I In which year does the economy have a higher GDP? Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Nominal GDP vs. Real GDP I The moral here is that prices (market value) of goods rise over time. I So, we must account for the increase in market value. I One way to do that is to set a base year and calculate GDP for all years using prices from just this base year. I The quantity you calculate using base year prices is what we call real GDP. I When you use current prices we call it nominal GDP. Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Nominal GDP vs. Real GDP Let us now use 2000 as the base year: Year Apples Oranges PApples POranges 2000 20 20 $1 $2 2005 15 15 $2 $4 I What was the GDP in 2000, using 2000 as the base year? I What was the GDP in 2005, using 2000 as the base year? I In which year is the economy producing more? I In which year does the economy have a higher GDP, using 2000 as the base year? Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Nominal GDP vs. Real GDP Similary, let us now use 2005 as the base year: Year Apples Oranges PApples POranges 2000 20 20 $1 $2 2005 15 15 $2 $4 I What was the GDP in 2000, using 2005 as the base year? I What was the GDP in 2005, using 2005 as the base year? I In which year is the economy producing more? I In which year does the economy have a higher GDP, using 2005 as the base year? Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Nominal GDP vs. Real GDP I So real GDP is a better measure of output then nominal GDP. I Even though nominal GDP rose in the period 1990-1991, U.S. real GDP fell from $7113 billion to $7101 billion (2000 dollars). I Formally, Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Why do we care about GDP? I Is GDP = Economic Well Being Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP & Economic Well Being I These pitfalls include: Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP & Economic Well Being I However, GDP does measure economic well being in some ways. Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP & Economic Well Being Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Final Words on GDP I A few nal words on GDP: I There are many nitty gritty details about how GDP is actually calculated if you are interested read the book, or better still send me an e-mail and I will send you a document published by the BEA. I GDP is not the only measure of output. There are many other measures, again read the book if your interested. It discusses things like GNP, NNP, Personal Income, and Disposable Personal Income as other measures of output and well being. Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion What is in ation? I What is In ation? I Like GDP it is an important measure of an economy?s well being. I High in ation erodes the value of savings and money in general. I We will now study how in ation is calculated. I Annual in ation is calculated at a monthly frequency and released by the Bureau of Labor Statistics monthly. I What the Bureau of Labor Statistics actually releases is the CPI data. Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion How is In ation Measured? I First, let us see how in ation is measured. I How is in ation measured? Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion What is CPI? I What is CPI? I Let us do an example. Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion What is CPI? I Let us rst de ne what a standard basket of goods is. Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion What is CPI?Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion What is CPI? Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion What is CPI?Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion What is CPI? Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion What is CPI?Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion What is CPI? Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion CPI BasketNotes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Measuring In ation I Ok, so now that we know how to calculate CPI we can calculate the in ation rate. I Remember: In ation, or more appropriately the rate of in ation, is measured as the annual percentage change in the price level, as measured by CPI. Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Measuring In ation Let us suppose you have the following data: Year 2003 2004 2005 2006 2007 CPI 1.840 1.889 1.953 2.016 2.073 I What do you think the in ation rate is between 2003 and 2004? I As an in-class exercise calculate the in ation rates between 2004 & 2005, 2005 & 2006, and 2006 & 2007. Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion De ation An important de nition: I The in ation rate need not always be positive, it can also be negative. Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion De ationNotes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Core In ation Another important de nition: I Another in ation measure economists often look at is called core in ation Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Core In ationNotes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Some Pitfalls I In ation is often viewed as a measure of how the cost of living is changing over time. I So, one of the big questions becomes: How good a measure of cost of living is in ation? Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Final Words on In ation I A few nal words on In ation: I CPI is often multiplied by 100 when it is reported. So CPI = 1.4, will often be reported as 140. These are equivalent ways of reporting the same data. I CPI is de nitely not the only or best measure of calculating in ation. I Another common way of calculating in ation is the GDP de ator. I GDP De ator = NominalGDPRealGDP . I You should know what the GDP de ator is and how it is calculated. Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Final Words on In ation I The main di erences between In ation calculated via CPI vs. the GDP de ator are: I This said the GDP de ator and In ation calculated via CPI are pretty similar. Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion GDP De ator & CPINotes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Unemployment I Let us end our discussion talking about unemployment. I One of the main measures of unemployment used by macroeconomists is what we call the unemployment rate. I It is calculated at a monthly frequency and released by the Bureau of Labor Statistics monthly. Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Why do Economists Study Unemployment?Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Unemployment De nitions Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Why Bother With De nitions? I De nitions allows us to categorize workers. I Workers who aren?t employed who don?t want to be employed have di erent goals than those who do want to be employed. I We might allocate resources (free education, unemployment insurance, etc.) more e ciently if we could categorize people by their preferences. I EXAMPLE: You don?t want to work, so if I pay for free vocational school for you, it is wasted money. Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Calculating Unemployment Rates: Putting the Data to Work I When you watch the news, periodically there are reports of unemployment rates, etc. I What do these mean? How did we arrive at these gures? I What is non-farm payroll? Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Calculating Unemployment Rates: Putting the Data to Work Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Calculating Unemployment Rates: Putting the Data to Work I Note: Data is in thousands of people. Category Q2 2008 (avg.) Q3 2008 (avg.) Sept. 2008 Oct. 2008 Nov. 2008 Labor Force 154,294 154,730 154,732 155,038 154,616 Employment 146,089 145,517 145,255 144,958 144,285 Unemployment 8,204 9,213 9,477 10,080 10,331 Not in Labor Force 79,117 79,381 79,628 79,575 80,212 Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Calculating Unemployment Rates: Putting the Data to Work Category Q2 2008 (avg.) Q3 2008 (avg.) Sept. 2008 Oct. 2008 Nov. 2008 Labor Force 154,294 154,730 154,732 155,038 154,616 Employment 146,089 145,517 145,255 144,958 144,285 Unemployment 8,204 9,213 9,477 10,080 10,331 Not in Labor Force 79,117 79,381 79,628 79,575 80,212 Notes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Trends in Unemployment I Note that unemployment has risen sharply in recent months. I We will explore the reasons why in the latter part of the course. Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion More Unemployment De nitionsNotes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Some thoughts I A small note: I I personally think that the non-farm payroll number is more important as one number than the unemployment rate. I Unemployment rate is important clearly! However, it doesn?t capture the whole picture always. I Non-farm payroll actually gives you how much of the \labor market" has been destroyed. I With non-farm payroll though you have to be careful as the participation rate might have decreased. I Or more aptly the labor force might have decreased. Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Change in Non-Farm PayrollNotes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Unemployment Rate Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Participation RateNotes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Conclusion I One nal important thing to know is that most data we look at is what we call seasonally adjusted (i.e. is seasonal variations are removed). I A great example to look at to understand why this is important is: Retail Sales. I As you can imagine retail sales have a very strong seasonal component. Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Retail SalesNotes Notes Macroeconomic Data GDP De nition Expenditure Methods Nominal GDP vs. Real GDP Why GDP? Final Words on GDP In ation What is in ation? How is In ation Measured? De ation Core In ation Final Words on In ation Unemployment How unemployment is calculated Some nal thoughts and data Conclusion Conclusion I For the rest of this course we will be throwing around words like in ation, output & unemployment so it is important you understand what each is. I But knowing what each is not enough you must understand to some level what the data is telling you. I Why GDP is the total nal market value and not something else? I Why the CPI basket includes a lot more meals than cars? I Why we don?t include discouraged workers in unemployment calculations? I Knowing the pitfalls is also very important. I Please go over these slides again and make sure you understand everything! Notes Notes Macroeconomic Data