What is Macroeconomics? Data. Macroeconomics II. Lecture 1: Introduction to Macroeconomics

Transcription

1 Lecture 1: Introduction to Macroeconomics

2 What is macroeconomics? What do we study? How do we study it? Macroeconomics: studies the whole economy main variables: real, inflation, unemployment usually dynamic setting Topics: Long term: Why some countries grow more quickly? Short term: Why do we have recessions and depressions? What can we do about it? Is it working?

3 source: Macroeconomics US BEA II What do we study? How do we study it? Figure : US real per capita 4000 (2005 USD) year

4 Inflation What do we study? How do we study it? Figure : US Inflation inflation (%) year

5 What do we study? How do we study it? Figure : US unemployment (%) year

6 Models What do we study? How do we study it? Example: Supply and demand exogenous vs. endogenous variables model assumptions and realism

7 Microeconomic foundations What do we study? How do we study it? Microeconomics: study of decisions of firms and consumers Macroeconomics: implicit vs. explicit modeling: Trade-off between tractability and realism based on the question studied

8 Why Do We Need? One cannot make conclusions based on casual observations The plural of anecdote is NOT data! The criterion of a model s worth is how it fits the data - The great tragedy of Science - the slaying of a beautiful hypothesis by an ugly fact. (Thomas Huxley)

9 Stock and Flow Two types of variables: 1 Stock - Quantity measured at a given instance: number of unemployed, amount of capital etc. 2 Flow - Quantity measured per a unit of time - (annual, quarterly...), number of jobs created per year etc., investment, depreciation etc.

10 Measures the performance of economy - primary sources of data: government - tax collection agencies, regulation etc. survey of businesses 2 ways of looking at it: 1 sum of income of every person in the economy 2 sum of all expenditures in the economy

11 Income, Expedinture and Circular Flow Flow of goods, factors and money - the market value of all final goods and services produced within economy in a given period of time Rules: used goods inventories intermediate goods and value added imputed values

12 Nominal vs. Real deflator = Nominal Real Chain-weighted measures of real - use average prices between two years to compute growth Lesson is the same: we have to take into account price changes when evaluating performance of an economy across years!

13 Components of Expedinture National income accounts identity: Y = C + I + G + NX C: nondurables, durables, services I : business fixed investment, residential fixed investment, inventory investment; what is investment? G: government purchases NX : net exports

14 Other Measures of Income GNP = + Factor Payments from Abroad Factor Payments to Abroad NNP = GNP Depreciation NI = NNP + statistical discrepancy Compensation of employees, proprietor s income, rental income, corporate profits, net interest, indirect business taxes

15 Personal Income Personal Income = NI Indirect Business Taxes +Dividends Corporate Profits +Government Transfers to Individuals Social Security Contributions +Personal Interest Income Net interest Disposable Personal Income = Personal Income Personal Tax Nontax Payments

16 CPI Inflation - increase in the overall level of prices Basket of goods consumed by a typical household Another indexes: PPI, specific types of goods (food, housing, and energy; core inflation)

17 CPI vs. Deflator Types of goods measured Origin of goods measured Aggregation of prices: Paasche index = Σ(pc,tn qc,tn ) Σ(p c,t0 q c,t0 ) Laspeyres index = Σ(pc,tn qc,t 0) Σ(p c,t0 q c,t0 )

18 CPI vs Deflator Figure : CPI vs Deflator - Czech Republic % Jan Jan Jan Jan Jan 11 Period CPI change Deflator change

19 Workers - chief resource of an economy Total Adult Population = Labor Force + Out of Labor Force Labor Force = Number of Employed + Number of Unemployed UR = # of unemployed Labor Force Labor Force Participation = Labor Force Total Adult Population

20 Labor Force Participation Figure : Labor Force Participation in the US % Year Male Female