Professional Documents
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Macroeconomic data
2.1 Aggregation: the value of many things
2.2 Output, income, and spending
2.2 Prices and the cost of living index
2.3 Joblessness and unemployment
2.1 Aggregation
You cant add chicken and
rice
Output
Combination Rice (tons) Chicken (kg)
A 2 5
B 4 8
C 8 3
E pluribus unum:
valuing many goods using prices
Chicken
Point B is obviously better
than A, since it contains more
of both goods.
C
Rice
The value of income,
expenditure, and output
Households own factors of production (land, labour, capital)
and rent these out to firms to earn factor incomes (rent,
wages, interest, and profits).
Firms use the factors to produce goods and services. The
value of output equals the payment to the factors (plus
profits retained by firms).
Households use incomes to spend on goods to be used by
households and by firms. The value of spending equals the
value of output.
Output = Income = Expenditure
2.2 Output, income, spending
Circular flow
Incomes Expenditure
Households
Factor services
Output
Firms
Real GDP2
Real GDP1
X2
Rice
GDP Deflator
The GDP Deflator is the ratio of nominal GDP
to Real GDP. That is,
GDP Deflator1 = Nominal GDP1/Real GDP1
= P1X1/ P0X1 x 100
Obviously, in the base-year 0:
GDP Deflator0 = P0X0/ P0X0 x 100 = 100.
(For convenience the GDP Deflator is often multiplied by
100, so that GDP0 = 100, and so on.)
GDP deflator
The GDP deflator allows one to convert nominal
to real GDP:
Real GDP1 = GDP1/ GDP Deflator1.
Then it is also true that:
% Real GDP = % GDP % GDP Deflator.
Example
2010 2011 %
Government Exports
consumption
Markets
Government for goods
Investment
Firms
E = C + G + I+ X
Aggregate supply: who
sells?
Households Foreigners
Imports
Government Markets
for goods
Firms
Output
Q = GDP + M
Aggregate spending and
supply
GDP + M = E
GDP + M = C + G + I + X
GDP = C + G + I + X M
Where income goes
Income
Households
C
Foreigners
G
Taxes X
Markets
Markets Government for goods
Saving
for factors
Firms
GDP = C + S + T E=C+G+I+X
Income and spending
GDP = C + S + T
C+G+I+XM=C+S+T
(I S) = (T G) + (M X)
G) + (M
I = S + (T investment-saving gap budget
X)surplus current-account deficit
40
30
20
10
0
81 83 85 87 89 91 93 95 97 99 '01 '03 '05
-10
2.4 Unemployment
Measuring unemployment
Working age population (WAP): 15-64 year
Labour force (LF): employed plus
unemployed
Not in the labour force (NLF): Neither
employed nor unemployed (e.g., students,
home-makers)
Measuring unemployment
Working-age population
Employed Unemployed
Underemployed
Measuring unemployment
Unemployment Underemployment
20
15
10
0
2005 2006 2007 2008 2009 2010 2011 2012
Employment shares (%)
0.6
0.5
0.4
0.3
0.2
0.1
0
88 89 90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10
Agriculture Industry Services
Labour-force statistics
October 2012 and 2010
2012 2010
Labor force participation rate (%) 63.9 64.2
Employment rate (%) 93.2 92.9
Unemployment rate (%) 6.8 7.1
Underemployment rate (%) 19.0 19.4
Memo:
Working-age population (millions) 62,253 59,481
GDP and GNP
Gross domestic product (GDP) the value of final
goods and services produced within the country
in a given period
location of producers as criterion
Exports Imports
Non-factor e.g., call-centre services; e.g., freight and insurance;
incoming long-distance outbound tourism
services phone calls; inbound
tourism; editorial services;
animation
GNI + M = C + G + I + X
GDI + M = C + G + I + X
GNI GDP = (X X) (M M)
leads to a greater
expansion of production
possibilities in the next.
Consumption good