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Measuring Economic Activity Gross domestic product (GDP).

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Title: Measuring Economic Activity Gross domestic product (GDP).


1
Measuring Economic Activity Gross domestic
product (GDP).
  • The market value of goods and services produced
    by labor and property in the United States,
    regardless of nationality GDP replaced gross
    national product (GNP) as the primary measure of
    U.S. production in 1991.

2
Line      2004   I    2004   II    2004   II    2004   III    2004   IV    2005   I
1       Gross domestic product 11,472.6 11,657.5 11,814.9 11,814.9 11,994.8 12,191.7
2 Personal consumption expenditures 8,060.2 8,153.8 8,282.5 8,282.5 8,423.3 8,542.8
3    Durable goods 976.3 975.5 1,007.0 1,007.0 1,017.0 1,023.6
4    Nondurable goods 2,316.6 2,354.6 2,387.2 2,387.2 2,449.7 2,490.0
5    Services 4,767.3 4,823.8 4,888.2 4,888.2 4,956.6 5,029.2
6 Gross private domestic investment 1,819.7 1,920.7 1,947.0 1,947.0 2,021.9 2,084.6
7    Fixed investment 1,783.5 1,861.7 1,915.4 1,915.4 1,975.3 2,015.2
8       Nonresidential 1,158.8 1,198.5 1,238.5 1,238.5 1,286.3 1,305.9
9          Structures 266.0 275.5 281.2 281.2 290.0 294.9
10          Equipment and software 892.8 923.1 957.3 957.3 996.3 1,011.0
11       Residential 624.6 663.2 677.0 677.0 688.9 709.3
12    Change in private inventories 36.2 59.0 31.6 31.6 46.7 69.4
13 Net exports of goods and services -546.8 -591.3 -611.8 -611.8 -674.8 -693.6
14    Exports 1,134.3 1,167.6 1,189.5 1,189.5 1,210.4 1,244.5
15       Goods 790.3 812.2 833.4 833.4 845.5 872.5
16       Services 344.1 355.4 356.1 356.1 365.0 372.0
17    Imports 1,681.2 1,758.9 1,801.2 1,801.2 1,885.2 1,938.1
18       Goods 1,399.2 1,470.1 1,506.9 1,506.9 1,587.2 1,632.9
19       Services 282.0 288.8 294.4 294.4 298.1 305.2
20 Government consumption expenditures    and gross investment 2,139.5 2,174.3 2,197.2 2,197.2 2,224.5 2,257.9
21    Federal 793.3 804.4 817.4 817.4 824.6 842.0
22       National defense 534.1 541.2 557.0 557.0 559.4 571.1
23       Nondefense 259.1 263.2 260.4 260.4 265.2 270.9
24    State and local 1,346.3 1,369.9 1,379.8 1,379.8 1,399.9 1,415.9
3
National income
  • A broader national level economic measure than is
    personal income. National income includes
    payments to individuals (income from wages and
    salaries, and other income), plus payments to
    government (taxes), plus retained income from the
    corporate sector (depreciation, undistributed
    profits), less adjustments (subsidies, government
    and consumer interest, and statistical
    discrepancy).

4
Line      2004   I    2004   II    2004   III    2004   IV    2005   I
1 Gross domestic product 11,472.6 11,657.5 11,814.9 11,994.8 12,191.7
2 Plus Income receipts from the rest of    the world 373.8 388.0 406.8 454.7 457.7
3 Less Income payments to the rest of    the world 300.3 351.9 368.6 426.7 424.4
4 Equals Gross national product 11,546.1 11,693.6 11,853.0 12,022.8 12,225.0
5 Less Consumption of fixed capital 1,355.0 1,375.2 1,497.9 1,401.2 1,408.1
6             Private 1,132.4 1,148.1 1,266.8 1,165.7 1,167.9
7                Domestic business 936.4 948.8 1,021.8 962.3 963.6
8                   Capital consumption                      allowances 1,319.8 1,327.7 1,378.0 1,381.4 1,158.6
9                   Less Capital                      consumption adjustment 383.4 378.9 356.2 419.1 195.0
10                Households and                   institutions 196.0 199.4 245.1 203.5 204.3
11             Government 222.6 227.0 231.1 235.5 240.2
12                General government 187.2 190.8 194.0 197.4 201.0
13                Government enterprises 35.4 36.2 37.1 38.1 39.2
14 Equals Net national product 10,191.1 10,318.4 10,355.1 10,621.6 10,816.9
15 Less Statistical discrepancy 63.0 56.4 60.4 -52.1 -70.1
16 Equals National income 10,128.1 10,262.0 10,294.7 10,673.7 10,887.0
5
Personal income
  • Measures national level income to persons and
    nonprofit corporations. Personal income includes
    payments to individuals (income from wages and
    salaries, and other income), plus transfer
    payments from government, less employee social
    insurance contributions

6
Equals National income 10,128.1 10,262.0 10,294.7 10,673.7 10,887.0
Less Corporate profits with inventory    valuation and capital consumption    adjustments 1,165.6 1,173.9 1,118.0 1,268.8 1,326.3
         Taxes on production and             imports less subsidies 1 782.9 796.3 803.5 819.9 830.0
         Contributions for government             social insurance 803.9 814.0 826.9 845.4 868.0
         Net interest and             miscellaneous payments on assets 554.5 548.5 546.7 548.2 557.4
         Business current transfer             payments (net) 82.7 83.5 76.0 86.3 87.2
         Current surplus of government             enterprises 1 8.1 7.4 6.5 5.7 3.4
         Wage accruals less             disbursements 1.5 -1.5 0.0 0.0 0.0
Plus Personal income receipts on assets 1,337.1 1,352.3 1,367.8 1,491.9 1,416.3
         Personal current transfer             receipts 1,379.0 1,400.4 1,415.4 1,428.9 1,469.0
Equals Personal income 9,445.0 9,592.7 9,700.4 10,020.1 10,100.2
7
Disposable personal income
  • Measures the after-tax income of persons and
    nonprofit corporations. It is calculated by
    subtracting personal tax and nontax payments from
    personal income.

8
Issues
  • GDP excludes non-market economic activity.
    (Washing your car vs going to the car wash.)
  • GDP excludes illegal activity
  • GDP doesnt count externalities

9
Measuring Unemployment
  • People with jobs are employed.
  • People who are jobless, looking for jobs, and
    available for work are unemployed.
  • People who are neither employed nor unemployed
    are not in the labor force.

10
Issues
  • Who is counted as employed
  • All persons who did any work for pay or profit
    during the survey reference week.
  • All persons who did at least 15 hours of unpaid
    work in a family-operated enterprise.
  • All persons who were temporarily absent from
    their regular jobs because of illness, vacation,
    bad weather, industrial dispute, or various
    personal reasons. What about the underemployed?

11
Who Is Unemployed?
  • All persons who were not classified as employed
    during the survey reference week, made specific
    active efforts to find a job during the prior 4
    weeks, and were available for work.
  • All persons who were not working and were waiting
    to be called back to a job from which they had
    been temporarily laid off
  • What about discouraged workers?

12
Is Unemployment Bad?
  • Almost everyone is unemployed at some point. It
    takes time to match workers and employers.
    Frictional unemployment is a term used to
    describe those who are seeking work but who
    havent yet found the right match.
  • Structural unemployment describes those who are
    unlikely to find work because of some flaw in the
    economy.
  • These are not precise terms and it can be hard to
    distinguish

13
Price Indices
  • A price index such as the consumer price index
    (cpi) compares the price of bundle of goods today
    with the price of the same bundle in a base year.
    As a matter of convention, the base year price
    is always expressed as 100.
  • The inflation rate is the percentage change in
    the index.

14
Year Jan
1996 154.4
1997 159.1
1998 161.6
1999 164.3
2000 168.8
2001 175.1
2002 177.1
2003 181.7
2004 185.2
2005 190.7
2006 198.3
15
Real v Nominal
  • The Nominal value of some variable is simply the
    actual dollar amount (e.g., GDP was about 12.5
    trillion.)
  • The Real value of a variable is the nominal value
    adjusted for inflation. That is
  • Real nominal/price index

16
Issues
  • How do you compare a standard bundle of goods
    from one time with another? (e.g., computers
    today and computers in 1980).
  • How do you deal with long lived assets (houses
    are a huge problem).
  • How do you deal with the fact that people change
    their consumption in response to changes in
    prices?

17
Cool Web Site
  • http//data.bls.gov/cgi-bin/cpicalc.pl

18
Is Inflation Bad?
  • Does it matter if a clock is 10 minutes fast or
    slow?
  • Inflation can do two bad things
  • Reduce the value of monetary assets. (But this
    can accomodated by various kinds of indexing)
  • Distort the information contained in prices
  • This all means that we should distinguish
    anticpated and unanticipated inflation.

19
The Simplest (and maybe most misleading) Macro
Model
20
Definitions
  • Y total gross domestic product
  • C Consumption
  • G Government Expenditures
  • T Tax
  • I Investment Expenditure

21
Assumptions
  • C a b(Y-T) (b is the marginal propensity to
    consume)
  • Y CIG (no international tradewell fix that
    latter).

22
Conclusion and Implications
  • Y aIG-bT/(1-b)
  • Multipliers (change in Y per unit change in G, I,
    or T)
  • Investment and G 1/(1-b)
  • Tax -b/(1-b)

23
Complication
  • I is almost certainly determined by a number of
    factors, including the level of interest rates.
  • Thus, we need to think about how the actions of
    the central bank influence the level of interest
    (and also prices).
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