Macroeconomic Measurement

1
Macroeconomic Measurement

• Environmental and Social Dimensions

2
Macroeconomics in Context

• Economic Activity within Social Context
• Economic Activity inputs
• natural resources
• Environmental services
• Economic Activity outputs
• Pollution
• wastes
• Social Context within Physical Context

3
Gross Domestic Product

• GDP the primary measure of an economys
  performance
• Total market value of all final goods and
  services produced in a given year
• GDP C Ig G Xn
• C personal consumption expenditures
• Ig gross private domestic investment
• G government purchases
• Xn net exports

4
Real GDP

• Real GDP Nominal GDP/Price index
• Price index
• A measure of the price of a specified collection
  of goods and services (called a market basket)
  in a given year as compared to the same in a
  reference year.
• The reference year is also called a benchmark.

5
Problems with GDP

• Does not fully reflect well-being
• Non-market activities
• Leisure
• Improved product quality
• Environmental quality
• Social well-being

6
Accounting for the Environment

• Resource Functions
• The provision by the natural environment of
  inputs into human production processes
• Environmental Service Functions
• The provision by the natural environment of the
  ecosystem services that support and enhance life
• Sink Functions
• The provision by the natural environment of
  places to put waste materials

7
Accounting for the Environment

• Physical Accounts
• Natural Assets and National Accounts
• Natural capital stock (the value of assets
  measured as of a point in time)
• Changes in asset levels or environments
  capacities (flow)

8
Environmentally Adjusted Net Domestic Product

• eaNDP GDP Depreciation of manufactured
  capital Depreciation of natural capital
• Genuine Saving proposed by the World Bank, it
  is equal to gross saving less depreciation of
  both manufactured and natural capital

9
National Accounts

• Natural Environment is another productive sphere
• Ecosystem generates goods and services
• Forests, fields, livestock, fish, clean air,
  water
• Compiling accounts is overwhelming
• So, what to do? Account for changes
• Loss of environmental service production

10
Natural Assets and Valuation

• We use monetary values to track manufactured
  assets
• Can we green GDP?
• Difficult to do so with natural assets
• Non-market goods

11
Satellite Accounts

• How to account for natural assets?
• Use physical terms rather than monetary
• Satellite accounts additional accounting
  systems that provide measures of social and
  environmental factors in physical terms, without
  necessarily including monetary valuation
• Using input-output accounts

12
Household Production

• Largely not accounted for in GDP
• Currently only include rent, paid household
  workers (gardener, housekeeper, etc.)
• Misses value of productive activities done
  without pay
• Third person criteria an activity is considered
  to be production if a person could buy a market
  replacement or pay someone to do the activity in
  his/her place

13
Household Production Measurement

• Time use surveys
• Replacement cost method
• Values hours at the amount necessary to pay
  someone to do the work
• Opportunity cost method
• Values hours at the amount the unpaid worker
  could have earned at a paid job

14
Measuring Economic Well-Being

• Since the goal of macroeconomics is human
  well-being, it makes sense to use indicators of
  the goals we want to achieve!
• Does GDP fully reflect our goals?

15
Genuine Progress Indicator

• GPI - a measure of economic well-being that adds
  many benefits, and subtracts many costs that are
  not included in GDP (Redefining Progress)
• Begins with personal consumption

16
Costs Subtracted from GPI

• Unequal income distribution
• Net foreign borrowing
• Cost of consumer durables
• Social costs
• Crime, car accidents, family breakdown, loss of
  leisure time, underemployment
• Environmental costs
• Cost of pollution abatement, loss of
  ecosystems, depletion of non-renewables, ozone
  depletion

17
Benefits Added to GPI

• Housework and parenting
• Volunteer services
• Services of consumer durables
• Services of highways and streets
• Net capital investment

18
Human Development Index

• HDI an index of well-being made by combining
  measures of health, education, and income (UNDP).
• Life expectancy at birth
• Index of adult literacy education enrollments
• GDP per capita

19
Comparing HDI and GDP

• Rankings roughly correspond
• Shows lack of well-being due to things like war
  or rampant disease
• UN also collects lots of other data on human
  development that can be used