Global Macroeconomics Measurement

Transcription

1 Global Macroeconomics Measurement

2 Action items Complete problem set #0 Due September 15 Economic Outlook Forum Tonight! 5:00-6:30, Paulson Auditorium Economic and market outlook Economists from: Nomura, CBO, Goldman Ask a question / vote on questions No class on Thursday (9/10) 2

3 Roadmap Headline Data Gross Domestic Product (GDP) Inflation How are they measured? What are the basic facts? 3

4 What can GDP tell us? The U.S. is becoming a service-based economy (What jobs are out there?) The U.S. is borrowing from the rest of the world. (How is this related to net exports?) The U.S. labor force is losing ground to corporate profits. (Is it?) 4

5 GDP per capita United States Japan Argentina China India Ghana Burundi 5

6 GDP GDP = Gross Domestic Product Total value of production in an economy Sum of value-added by production units Equals: payments to labor and capital (owners) sales of final goods (almost) income 6

7 GDP as value added Value added = sales material input costs Material input costs Goods used up in production (cogs) Doesn t include capital purchases Doesn t include labor

8 GDP identities Farmer Sales of wheat = $10 Farm Rent = $3 Net Income = $7 Value Added =?? Baker Sales of bread = $110 Factory Rent = $30 Wages = $70 Wheat = $10 Value Added =?? Landlord s income + wages + profits =?? Value added farming + value added baking =?? Final production farming + final production baking =?? 8

9 GDP identities Farmer Sales of wheat = $10 Farm Rent = $3 Net Income = $7 Value Added =?? Baker Sales of bread = $110 Factory Rent = $30 Wages = $70 Wheat = $10 Value Added =?? Landlord s income +wages + profits =?? (3+30) + (70) + (7) = 110 Value added farming + value added baking =?? (10) + (100) = 110 Final production of wheat + final production of bread =?? (0) + (110) = 110 9

10 GDP identities: extended example GDP by value added: GDP Ford Goodyear Spock LIC GDP by expenditure: GDP C I G X M GDP as payments to labor and capital: GDP Ford Goodyear Spock LIC 10

11 GDP: value added by industry 30 manufacturing 25 share of total GDP (%) FIRE 5 bus. services 0 agriculture

12 GDP by income type labor compensation share of total GDP rental income 0.1 corp. profits interest

13 Expenditure flows Allocate GDP among purchasers of final goods: Y = C + I + G + NX Y = GDP C = sales to households I = sales of capital goods to firms G = purchases of goods and services by government NX = net exports (net sales to other countries) Why only final goods? 13

14 GDP by expenditure private consumption share of total GDP government consumption investment net exports

15 Savings flows I Allocate flows of assets: Y C G = I + NX S = I + NX S = (gross) national saving (purchases of assets) NX = net purchases of foreign assets 15

16 Saving investment share of total GDP saving net exports

17 What about prices? Nominal GDP (at current prices): What happens when prices change? 17

18 Prices and quantities GDP measures output at market prices What if prices change? If GDP rises, how much is higher quantity, how much higher prices? Two measures GDP at current prices GDP at constant prices (e.g prices) Problem: many ways to do this 18

19 Two ways to measure inflation Approach 1 ( fixed weight/price ) ( Paasche ) Compute GDP at current prices ( nominal GDP ) Compute GDP at constant prices (e.g., 2009) ( real GDP ) Compute price deflator = ratio of first to second Inflation is rate of change of deflator Approach 2 ( fixed basket/quantity ) ( Laspeyres ) Compute GDP at current prices ( nominal GDP ) Compute price index as cost of a fixed basket of products Compute real quantity as ratio of nominal quantity to index Inflation is rate of change of index 19

20 Example Fish Chips Date Price Quantity Price Quantity What is the inflation rate? What is real output growth? 20

21 Fixed price method (GDP deflator) Fish Chips Date Price Quantity Price Quantity Date Nominal GDP Real GDP Growth rate Price Deflator Base year:

22 Fixed price method (GDP deflator) Fish Chips Date Price Quantity Price Quantity Date Nominal GDP Real GDP Price Deflator Growth rate 8.34% 1.65% 6.69% Base year:

23 Fixed price method (GDP deflator) Fish Chips Date Price Quantity Price Quantity Date Nominal GDP Real GDP Price Deflator Growth rate 8.34% 1.27% 7.08% 2013 BY rate 8.34% 1.65% 6.69% Base year:

24 How important was IT in the 1990s? Features: Output grew rapidly (60%/year) Prices fell Output quality improved Result: when base year was updated, real growth fell Why? Approaches: Chain weighting Adjust prices for quality change (easier said than done) 24

25 Fixed quantity method (CPI) Fish Chips Date Price Quantity Price Quantity Date Growth rate Price Index (2013 Basket) Price Index (2014 Basket) 25

26 Fixed quantity method (CPI) Fish Chips Date Price Quantity Price Quantity Date Price Index (2013 Basket) Price Index (2014 Basket) / = / = / = / =100.0 Growth rate 7.08% 6.69% Normalize to = 100 in base year 26

27 Details, details Not in GDP (do not reflect current production) Capital gains, (houses, equity, land, used cars) Interest on government debt Government services are valued at cost Home production not counted Black market transactions not counted GNP = GDP + net foreign factor income Difference a fraction of a percent in US Larger for countries with substantial foreign investment 27

28 GDP is Output Income Expenditure Takeaways Measuring real GDP is tricky Fixed weight index Fixed price index Neither is perfect 28

29 Takeaways Composition by industry Manufacturing shrinking Services growing Payments to factors Labor share near 2/3, rest payments to capital Shares constant over time Expenditure Private consumption: 60 70% of U.S. GDP Private investment: 15 20% of U.S. GDP 29