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GDP = C + I + G + NX
GDP = Y = Output
Hong Kong Government Half yearly Economic Report 2017
a. Personal Consumption Expenditures
(C)
Personal consumption expenditures (C)
Expenditures by consumers on goods and services.
(i) Durable goods Goods that last a relatively long
time, such as cars and household appliances (e.g.
computer).
Proxy for Recession:
If the economy is recession, you will sell durable goods
(ii) Nondurable goods Goods that are used up fairly
quickly, such as food and clothing.
280
240
200
160
120
80
40
0
82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
280 140,000
240 120,000
200 100,000
160 80,000
120 60,000
80 40,000
40 20,000
0 0
82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
CLASS_A CLASS_B
CLASS_C SUPPLY_TOTAL
From Rating and Valuation Department Bar = Land Supply, Line = Property Supply
China stock market
crisis in 2015 Hong Kong Government Half yearly Economic Report 2017
Hong Kong’s Property Bubble
• Starting from 2009, Hong Kong property
price has increased from 100 to around
349.1 (Average of Class A, B and C, in
2017).
• According to Demographia’s report in
2017, it takes 18.1 years to buy a
property in Hong Kong.
• Is the soaring property price sustainable?
Demographia report 2017
(i) Affordability decrease
Pizza Latte
year P Q P Q
2002 $10 400 $2.00 1000
2003 $11 500 $2.50 1100
2004 $12 600 $3.00 1200
Nominal GDP
Compute nominal GDP in each year: Growth Rate
Increase:
2002: $10 x 400 + $2 x 1000 = $6,000
37.5%
2003: $11 x 500 + $2.50 x 1100 = $8,250
30.9%
2004: $12 x 600 + $3 x 1200 = $10,800
EXAMPLE (Base year method):
Pizza Latte
year P Q P Q
2002 $10 400 $2.00 1000
2003 $11 500 $2.50 1100
2004 $12 600 $3.00 1200
Compute real GDP in each year, Real GDP
using 2002 as the base year: Growth Rate
Increase:
2002: $10 x 400 + $2 x 1000 = $6,000
20.0%
2003: $10 x 500 + $2 x 1100 = $7,200
16.7%
2004: $10 x 600 + $2 x 1200 = $8,400
EXAMPLE:
Nominal Real
year GDP GDP
2002 $6000 $6000
2003 $8250 $7200
2004 $10,800 $8400
In each year,
• nominal GDP is measured using the (then)
current prices.
• real GDP is measured using constant prices from
the base year (2002 in this example).
EXAMPLE:
Nominal Real
year GDP Inflation GDP Inflation
2002 $6000 $6000
37.5% 20.0%
2003 $8250 $7200
30.9% 16.7%
2004 $10,800 $8400
• The change in nominal GDP reflects both prices and
quantities.
The change in real GDP is the amount that
GDP would change if prices were constant
(i.e., if zero inflation).
Hence, real GDP is corrected for inflation.
The GDP Deflator
• The GDP deflator is a measure of the overall
level of prices.
• Definition:
nominal GDP
GDP deflator = 100 x
real GDP
a. Compute nominal GDP, real GDP, and the GDP deflator for
each year, using 2010 as the base year.
b. Compute the percentage change nominal GDP, real GDP,
and the GDP deflator in 2011 and 2012 from the preceding
year. For each year, identify the variable that does not
change. Explain in words why your answer makes sense.
c. Did economic well-being rise more in 2011 or 2012? Explain
Current Price x Real GDP GDP Deflator
Current Quantity
N.GDP
The town of Baotou, in Inner Mongolia, largest Chinese source of rare earth
Photograph: David
Gray/Reuters
Case Study – Rare Earth in China
• Rare earth is essential to advanced technology
from smartphones to GPS receiver, wind farms
to electric cars.
• China accounts for 97% of global output of it,
with two-thirds produced in Baotou.
Case Study – Rare Earth in China
• To extract rare earth, a lot of toxic chemicals
must be used. These chemicals cause cancers
to people.
• The villagers have obtained the promise of
financial compensation, as yet only partly
fulfilled.
https://www.youtube.com/watch?v=t_UdqZdFr-
w&list=PL5mnQL6klRERkVxQo_kZHrOEV3karvsA_
https://www.youtube.com/watch?v=ZHJ3G-
yoet0
Rare-earth mining in China comes at a heavy
cost for local villages, Guardian, 7 August 2012