Measuring Economic Activity Gross domestic product (GDP).

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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.

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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
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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).

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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
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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

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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
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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.

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Issues

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

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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.

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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?

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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?

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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

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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.

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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
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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

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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?

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Cool Web Site

• http//data.bls.gov/cgi-bin/cpicalc.pl

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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.

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The Simplest (and maybe most misleading) Macro
Model
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Definitions

• Y total gross domestic product
• C Consumption
• G Government Expenditures
• T Tax
• I Investment Expenditure

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Assumptions

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

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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)

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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).