The Data of

Macroeconomics
Chapter 2 of Macroeconomics,
8th edition, by N. Gregory
Mankiw
ECO62 Udayan Roy
 Chapter Overview

What do the following

macroeconomic variables
represent? How are they
measured?
Gross Domestic Product (GDP)
The Consumer Price Index (CPI)
The Unemployment Rate
Youve seen this
before in
Introductory
Macroeconomics.
So, I will try to be
brief.
GROSS DOMESTIC
PRODUCT AND ITS
COMPONENTS
GDP is both
Total expenditure on domestically-
produced
final goods and services.
Total income earned by domestically-
located
Expenditure
productive equals
equals income
resources.
Expenditure income
because
because
every
every dollar
dollar spent
spent by
by aa buyer
buyer
becomes
becomes income
income to
to the
the seller.
seller.
 Final and Intermediate
Goods
GDP counts the value of only final
goods, not intermediate goods
Intermediate goods are those goods that
disappear inside other goods that are
produced for sale
Final goods are goods that are not
intermediate goods
This way, the value of intermediate
goods is counted only once, not twice
or thrice.
The Circular Flow of Income and Expenditure

Income ($)

Labor

Households Firms

Goods

Expenditure
($)
The expenditure components of GDP

consumption, C
investment, I
government spending, G
net exports, NX
The national income identity:
Y = C + I + G + NX
value of
total aggregate
output expenditure
Consumption (C)
Consumption is the value of durable goods
all goods and services last a long time
bought by households. It e.g., cars, home
includes: appliances
nondurable
goods
last a short time
e.g., food, clothing
services
work done for
consumers
e.g., dry cleaning,
air travel
U.S. Consumption, 2010
Total
$ Per
billion % of Person
s GDP $
14526.
Gross domestic product 5 100.0 46844
Personal consumption 10245.
expenditures 5 70.5 33039
Goods 3387.0 23.3 10922
Durable goods 1085.5 7.5 3500
Nondurable goods 2301.5 15.8 7422
Services 6858.5 47.2 22117
Investment (I)
This is spending on goods bought for future
use
(i.e., capital goods)
It includes:
Business fixed investment
Spending on plant and equipment
Residential fixed investment
Spending by consumers and landlords on
housing units
Inventory investment
The change in the value of all firms inventories
U.S. Investment, 2010
Total
$ Per
billion % of Person
s GDP $
Gross domestic 14,526.
product 5 100.0 46,844
Gross private domestic
investment 1,795.1 12.4 5,789
Fixed investment 1,728.2 11.9 5,573
Nonresidential 1,390.1 9.6 4,483
Structures 374.4 2.6 1,207
Equipment and
software 1,015.7 7.0 3,275
Residential 338.1 2.3 1,090
Change in private
inventories 66.9 0.5 216
 Government spending (G)
G includes all government spending
on goods and services.
It excludes transfer payments (e.g.,
unemployment insurance payments),
because they do not represent
spending on goods and services.
U.S. Government Spending,
2010
Total
$ Per
billion % of Person
s GDP $
14,526.
Gross domestic product 5 100.0 46,844
Government consumption
expenditures and gross
investment 3,002.8 20.7 9,683
Federal 1,222.8 8.4 3,943
National defense 819.2 5.6 2,642
Nondefense 403.6 2.8 1,301
State and local 1780 12.3 5,740
 U.S. Net Exports, 2010
Total
$ Per
billion % of Person
s GDP $
Gross domestic 14,526.
product 5 100.0 46,844
Net exports of goods
and services -516.9 -3.6 -1,667
Exports 1,839.8 12.7 5,933
Goods 1,277.8 8.8 4,121
Services 562.0 3.9 1,812
Imports 2,356.7 16.2 7,600
Goods 1,947.3 13.4 6,279
Services 409.4 2.8 1,320
 Net Exports: NX = EX IM
It is the value of total exports (EX) minus the
value of total imports (IM)
20%

NX
16%
exports
12% imports

8%

4%

0%

-4%

-8%
1950 1960 1970 1980 1990 2000 2010
Real and Nominal GDP
GDP is the market value of all final goods
and services produced.
nominal GDP measures these values
using current prices.
Current prices are the prices that prevailed at
the time of production
real GDP measure these values using
constant prices (the prices during the base
year).
 NOW YOU TRY:
Real and Nominal GDP
2006 2007 2008
P Q P Q P Q

good A $30 900 $31 1,000 $36 1,050

good B $100 192 $102 200 $100 205

Nominal GDP

Real GDP

Compute nominal GDP in each year.

Compute real GDP in each year using 2006 as the base year.
NOW YOU TRY:
Real and Nominal GDP
2006 2007 2008
P Q P Q P Q

good A $30 900 $31 1,000 $36 1,050

good B $100 192 $102 200 $100 205

(30900) + (311000) + (361,050) +
Nominal
(100192) = (102200) = (100205) =
GDP
$46,200 $51,400 $58,300
(30900) + (301000) + (301,050) +
Real
(100192) = (100200) = (100205) =
GDP
$46,200 $50,000 $52,000
GDP Deflator: overall price level
2006 2007 2008
P Q P 100 Q P 100 Q
GDP
100 51,400/50,00 58,300/52,0
Deflator
good A $30 900 $31 1,000 00
$36= 112.1
1,050
0 = 102.8
Average prices 12.1%
good
compared B $100
to Same192 2.8% higher
$102 200 $100 205
base year higher
(30900) + (311000) + (361,500) +
Nominal
(100192) = (102200) = (100205) =
GDP
$46,200 $51,400 $58,300
(30900) + (301000) + (301,500) +
Real
(100192) = (100200) = (100205) =
GDP
$46,200 $50,000 $52,000
U.S. Nominal and Real GDP,
1929-2010
 U.S. Gross Domestic Product per capita
50000

45000

40000

35000

30000

25000

20000

15000

10000

5000

Source: bea.gov National Income and Product Accounts

Tables, Table 7.1. Income in chained (2005) dollars.
 Growth Rate: computation

Value for the year value for previous year

Growth Rate 100
value for previous year
 2006 2007 2008 NOW YOU TRY:

Nominal $46,20 $51,40 $58,30 Real and Nominal GDP

GDP 0 0 0
Growth
Rate %
Real $46,20 $50,00 $52,00
GDP 0 0 0
Growth
Rate %

Value for the year value for previous year

Growth Rate 100
value for previous year
 NOW YOU TRY:
2006 2007 2008
Real and Nominal
Nominal $46,20 $51,40 $58,30 GDP
GDP 0 0 0
Growth
11.26 13.42
Rate % [(51,400
46,200) / 46,200]
Real $46,20 $50,00 $52,00 100 = 11.26
GDP 0 0 0
Growth
8.23 4.00
Rate %

Value for the year value for previous year

Growth Rate 100
value for previous year
 NOW YOU TRY:
2006 2007 2008
Real and Nominal
Nominal $46,20 $51,40 $58,30 GDP
GDP 0 0 0
Growth
11.26 13.42
Rate % GDP Deflator =
Real $46,20 $50,00 $52,00 Nominal GDP / Real
GDP
GDP 0 0 0 It is a measure of
the overall price
Growth level
8.23 4.00 Its growth rate is a
Rate % measure of the
GDP rate of inflation
1.00 1.028 1.121
Deflator As an
approximation, the
Growth GDP Deflators
2.80 9.06
Rate % growth rate =
growth rate of
Nominal GDP
 Where to find US data
Bureau of Economic Analysis, U.S.
Department of Commerce:
http://bea.gov
Federal Reserve Bank of St. Louis:
http://research.stlouisfed.org/fred2/c
ategories/18
 International Comparisons
When the GDP numbers for various
countries are being compared, the
same currency units must be used
There are two ways of converting
from national countries to a common
currency, such as the US dollar
Use market exchange rates
Use a common set of prices (PPP)
 GDP per capita, in US
dollars
PPP Market Exchange
Rates
United States 44063.34 44063.34
United Kingdom 33849.18 40237.54
Japan 32051.81 34263.64
Uruguay 10584.77 6036.12
Ukraine 6269.05 2324.32
Albania
5815.12 2891.94
China 4657.28 2021.97
India 2317.19 762.14
Bangladesh 1223.01 417.66
Ethiopia
724.61 202.05
Liberia
333.45 170.88

Source: World Economic Outlook 2008 database,

Chain-Weighted Real GDP
Over time, relative prices change, so
the base year should be updated
periodically.
In essence, chain-weighted real
GDP
updates the base year every year,
so it is more accurate than constant-
price GDP.
Your textbook uses constant-price real
GDP, because:
GROWTH RATE MATH
 If Z = X Y then gz = gx +
gy
z new zold z new The growth rates here are in
gz 1 decimal form: for example, if
zold zold X grows at the rate of 5%,
then gx = 0.05. The product
z new xnew ynew of two decimals is small
1 gz enough to be ignored: for
zold xold yold example, 0.05 0.04 =
0.0020.

1 g z (1 g x )(1 g y )
1 gz 1 gx g y gx g y
gz gx gy gx gy
gz gx gy
If Z = X Y then gz = gx gy
x
z
y
z y x
gz g y gx
gz gx g y
 If Z = X then gz = a gx
a

z x x x
a
x
a times

gz gx gx gx a gx

a times
CONSUMER PRICE INDEX
(CPI)
Consumer Price Index (CPI)
It is a measure of the overall level of
prices
It is published by the Bureau of Labor
Statistics (BLS)
The CPI is used to:
track changes in the typical households
cost of living
adjust many contracts for inflation
(COLAs)
allow comparisons of dollar amounts
How the BLS constructs the
CPI
1. Survey consumers to determine
composition of the typical
consumers basket of goods
2. Every month, collect data on prices
of all items in the basket; compute
cost of Cost
basket
of basket in that month
100
3. CPI in any
Cost month
of basketequals
in base period
The composition of the CPIs
basket
NOW YOU TRY:
Compute the CPI
Typical consumers basket: 20 pizzas, 10
compact discs
prices: For each year,
pizza CDs compute
2002 $10 $15 the cost of the
2003 $11 $15 basket
2004 $12 $16 the CPI (use 2002 as
2005 $13 $15 the base year)
the inflation rate
from the preceding
year
 NOW YOU TRY:
Compute the CPI and
Inflation Rate
Typical consumers basket: 20 pizzas, 10
compact discs
inflatio
pizza CDs
cost CPI n
200
$10 $15
2
200
$11 $15
3 Cost of typical consumer' s basket in current period
200
CPI 100
$12
Cost $16
of typical consumer' s basket in base period
4
200
$13 $15
5
 NOW YOU TRY:
Compute the CPI and
Inflation Rate
Typical consumers basket: 20 pizzas, 10
compact discs
inflatio
pizza CDs
cost CPI n
200
$10 $15
2 $350
200
$11 $15
3 $370
Cost of typical consumer' s basket in current period
200
CPI 100
$12
Cost $16
of typical consumer' s basket in base period
4 $400
200
$13 $15
5 $410
 NOW YOU TRY:
Compute the CPI and
Inflation Rate
Typical consumers basket: 20 pizzas, 10
compact discs
inflatio
pizza CDs
cost CPI n
200
$10 $15
2 $350 100
200
$11 $15
3 $370 105.71
Cost of typical consumer' s basket in current period
200
CPI 100
$12
Cost $16
of typical consumer' s basket in base period
4 $400 114.29
200
$13 $15
5 $410 117.14
 NOW YOU TRY:
Compute the CPI and
Inflation Rate
Typical consumers basket: 20 pizzas, 10
compact discs
inflatio
pizza CDs
cost CPI n
200
$10 $15
2 $350 100
200
$11 $15
3 $370 105.71 5.71
Cost of typical consumer' s basket in current period
200
CPI 100
$12
Cost $16
of typical consumer' s basket in base period
4 $400 114.29 8.11
200 CPI in current period CPI in preceding period
Inflation $13 $15 100
5 CPI in preceding
$410 period 117.14 2.50
 U.S. Inflation (%)
20

15

10

-5

-10

-15

Source: See ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt for

historical data and http://www.bls.gov/news.release/cpi.toc.htm for
latest data.
 CPI vs. GDP Deflator
Prices of non-consumer goods:
included in GDP deflator (if produced
domestically)
excluded from CPI
Prices of imported consumer goods:
included in CPI
excluded from GDP deflator
The basket of goods:
CPI: fixed
GDP deflator: changes every year
 Two measures of inflation in the U.S.
15%

CPI
from 12 months earlier
Percentage change

10%

5%

GDP deflator
0%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
UNEMPLOYMENT
 The Current Population
Survey
The Bureau of Labor Statistics (BLS) of the U.S.
Department of Labor computes the
unemployment rate every month
The data comes from a monthly survey of U.S.
households called the Current Population Survey
See http://bls.gov/cps/
This survey classifies each adult into one of
three categories: employed, unemployed, and
not in the labor force
Three Population Categories
This survey classifies each adult into one
of three categories:
employed (working at a paid job)
unemployed (not employed but looking for a
job), and
not in the labor force (not employed, not
looking for work)

Labor force = employed + unemployed

Two important labor market stats

unemployment rate
percentage of the labor force that is
unemployed
labor force participation rate
the fraction of the adult population that is
in the labor force
 U.S. Unemployment Rate (%)
12

10

Source: See ftp://ftp.bls.gov/pub/special.requests/lf/aat1.txt. for

historical data and http://bls.gov/news.release/empsit.toc.htm for
latest months data.
NOW YOU TRY:
Computing labor statistics
U.S. adult population by group, May
2009
Number employed = 140.57 million
Number unemployed = 14.51
million
Use the above
Adult data to calculate
population = 235.45 million
the labor force
the number of people not in the labor
force
the labor force participation rate
the unemployment rate
NOW YOU TRY:
Answers
data: E = 140.57, U = 14.51, POP = 235.45
labor force
L = E +U = 140.57 + 14.51 = 155.08
not in labor force
NILF = POP L = 235.45 155.08 = 80.37
unemployment rate
U/L x 100% = (14.51/155.08) x 100% = 9.4%
labor force participation rate
L/POP x 100% = (155.08/ 235.45) x 100% =
65.9%
The Current Establishment
Survey
The BLS obtains a second measure of
employment by surveying businesses,
asking how many workers are on their
payrolls.
See http://bls.gov/ces/
Neither measure is perfect, and they
occasionally diverge due to:
treatment of self-employed persons
new firms not counted in establishment survey
technical issues involving population inferences
from sample data
 Two measures of employment growth
8%
household survey
establishment survey
from 12 months earlier

6%
Percentage change

4%

2%

0%

-2%

-4%
1960 1970 1980 1990 2000 2010
 U.S. Labor Data
Current Population Survey: http
://bls.gov/cps/
ftp://ftp.bls.gov/pub/special.requests/lf/aat1.txt
Current Establishment Survey: http
://bls.gov/ces/
ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb1.txt
ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb2.txt
 International Labor
Comparisons
The BLS presents internationally
comparable labor data for many countries
at http://bls.gov/fls/home.htm
 Chapter Summary
Gross Domestic Product (GDP) measures both
total income and total expenditure on the
economys output of goods & services.
Nominal GDP values output at current prices;
real GDP values output at constant prices.
Changes in output affect both measures,
but changes in prices only affect nominal GDP.
GDP is the sum of consumption, investment,
government purchases, and net exports.
Chapter Summary
The overall level of prices can be
measured
by either:
the Consumer Price Index (CPI),
the price of a fixed basket of goods
purchased by the typical consumer, or
the GDP deflator,
the ratio of nominal to real GDP
The unemployment rate is the fraction of
the labor force that is not employed.