Econ 302 9/11/2009 Week 2 1 Chapter 2: Macroeconomic Data Three Central Measures Gross Domestic Product (GDP) “GDP is the total market value of all final goods and services produced within a country in a given period of time” (usually quarterly or yearly) How to Calculate GDP Definition ∑goods piqi (ith good) Product Approach ∑(Market Value of Final Goods/Services) Expenditure Approach ∑(Expenditure on Final Goods/Services) Income Approach ∑(Factor Payments by Firms) = ∑(Factor Income) Value Added Approach ∑(Value Added by Firms) Included: final goods, change in inventories, imputed rent on owned real estate Excluded: used goods, sales out of inventories, intermediate goods, underground econ. NGDP = weight current-year quantities by current-year prices RGDP = weight current-year quantities by base-year prices GDP Deflator Nominal GDPReal GDP Y C I G NX C I G ( )X M (national income accounting identity) Inflation Rate (π) CPI Current Market Basket ExpenditureBase Year Market Basket Expenditure %ΔCPI or %ΔGDP Deflator Sources of bias: substitution, introduction of new goods, unobserved changes in quality Unemployment Rate (UR) LF E U UR ULF( )100 LFPR LFAdult Population( )100 Not in LF: student, household producer, retiree, discouraged worker, prisoner, self-employed Circular Flow Diagram Economic agents: firms and households Two markets: goods market, factor marketEcon 302 9/11/2009 Week 2 2 National Income Accounting GNP GDP NFP NNP GNP Depreciation NI = Employee Compensation + Proprietors’ Income + Rental Income + Corporate Profits + Net Interest + Indirect Business Taxes PI = NI – IBT – Corp. Profits – Social Insurance Contributions – Net Interest + Dividends + TR + Personal Interest Income DPI = PI – Personal Tax/Nontax Payments Questions 1) Does the base year matter when computing RGDP? Can you pick the wrong base year? 2) Where did the “GDP Deflator” get its name? 3) Define the terms “Laspeyres index” and “Paasche index”. Provide examples. 4) Is it possible that %ΔCPI and %ΔGDP Deflator disagree? Why or why not? 5) How does the US Bureau of Labor Statistics define “unemployed”? Is this a good definition? 6) What were the main trends in US LFPR over the past fifty years? What factors caused this change? 7) Using the income approach, what is the largest share of US GDP? 8) Japan has an unemployment rate of 10%, with 90 million employed people. When the unemployment rate was calculated, the economy had 5 million discouraged workers. A new jobs program instituted by the government drives all of the discouraged workers into the labor force, and 80% of them find jobs. What happens to the unemployment rate? In your opinion, was the jobs program successful? 9) Complete the following table. Trillons of $USD 2007, Q1YC Durable goods 1.1 Nondurable goods 2.8 Services 5.8I Fixed investment 2.1 Nonresidential 1.4 Residential 0.7 Change in private inventories -0.002G Federal 0.95 State and local 1.7NX Exports 1.6 Imports 2.6 10) Which of the following are counted in I: stock trade, issue of stock, purchase of a pre-existing
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