Economic Analysis ECON 100B
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This 18 page Class Notes was uploaded by Dr. Janiya Bernier on Thursday October 22, 2015. The Class Notes belongs to ECON 100B at University of California - Berkeley taught by Staff in Fall. Since its upload, it has received 16 views. For similar materials see /class/226713/econ-100b-university-of-california-berkeley in Economcs at University of California - Berkeley.
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Date Created: 10/22/15
Measuring Macroeconomic Data Today s Agenda b l Measuring Economic Activity N Measuring In ation Fquot Measuring Unemployment b Measuring Interest Rates Measuring Economic Activity Measuring Economic Activity The national income and product accounts are an accounting framework used to measure economic activity and its components National Income Accounting Three different approaches N Product approach the dollar amount of output newly produced N Expenditure approach the dollar amount spent by purchasers on newly produced output I Income approach the dollar incomes earned by production of the newly produced output National Income Accounting Thus the fundamental identity of national income accounting is Total Production Total Expenditure Total Income The Product Approach to GDP Gross Domestic Product GDP is defined as l The current market value of all N nal goods and services W newly produced 4 in the domestic economy during a Equot specified period of time The Product Approach to GDP 1 Market value allows adding together unlike items by valuing them at their market prices a Imputed values are used for some nonrnarket goods and services b Most nonrnarket goods and services are not included 0 Some market goods and services are not included The Product Approach to GDP The Product Approach to GDP Final goods and services those goods and services that are NOT completely used up in the production process 7 Intermediate goods and services are those completely used up in the production of other goods and services in the same period that they themselves were produced Alternatively adding up value addedwould work 2 Final goods and services Two caveats a Capital goods are used to produce other goods and are treated as nal goods because they are NOT completely used u in the same period that they are produce b Inventory investment ithe amount that inventories ofunsold nished goods goods in process and raW materials have changed during the periodiis also treated as a nal good The Product Approach to GDP The Product Approach to GDP 3 Newly produced counts only goods and services produced in the specified period of time 4 In the domestic economy counts only goods and services produced Within the geographical boundaries of the country The Product Approach to GDP 5 Speci edperiod oftime because GDP is a ow concept it must be measured during a speci ed period of time P Flows represent an amount per unit of time P Stocks represent an amount at a particular point in time The Expenditure Approach to GDP GDP is also defined as The total spending on all 2 nal goods and services produced 343 within the domestic economy during a k speci ed period of time The Expenditure Approach to GDP Four main categories of spending 1 Consumption C 2 Investment 1 W Government purchases goods and services G 5x Net Emorts NX The Expenditure Approach to GDP The national income identity is Y C I G NX Also called the incomeexpenditure identity The Expenditure Approach to GDP 1 Consumption spending by domestic households on final goods and services 7 Three categories a Durable gems mending which is spending by households on goods that last 3 years or longer Nondurable goods mending which is spending by households on goods that last less than 3 years 6 Services mending which is spending by households that is consumed immediately The Expenditure Approach to GDP Pmonal cnmurrvnan Expmum quotnun nu 1I11llll Uni Manila 2 55 I Saw Hvanimes The Expenditure Approach to GDP 2 Investment spending by domestic businesses for new capital goods and inventories 7 Three categories a BuM ness fixed investment current spending on 1 new equipment 2 new structures and 3 new intellectual property products 5 Ren39dential xed investment current spending on new housing units 5 Inventory investment current spending on additional holdings of raw materials parts and nished goods The Expenditure Approach to GDP 2w Gmquot Pmm Dunm Imutmm num nsluuswvsunlsussonnsvn 5am HvaniMlcs The Expenditure Approach to GDP 54 Government purchases of goods and services spending by units of government on final goods or services 7 Two categories a Federal government purchases b State and local gavemmentpurchasex The Expenditure Approach to GDP aamnmm Fuuhul quotnun nu 1I11llll Uni Manila 2 55 I Saw Hvanimes The Expenditure Approach to GDP 3 Government spending includes a Government purchases of goods and services the GinCIGNX and Fr Gavernment transfer payments payments for which no goods services or uses of factors of production are exchanged in the speci ed time period 39 Transfer payments are M included in G The Expenditure Approach to GDP Guvlrmm Trumu Plumms num nsluuswvsunlsussonnsvn 5am HvaniMlcs The Expenditure Approach to GDP Tam aamnmm Spinal quotmm w u u u a a2 2 2 2 u in in u sauna 1n15uu in nun In Same HvaniMlcs The Expenditure Approach to GDP 4 Net exports exports minus imports 7 Two categories a Exports are goods produced in the country that are purchased by foreigners b Imports are goods produced abroad that are purchased by residents in the country m m The Expenditure Approach to GDP The Expenditure Approach to GDP Bum m39n39aquotquota gnuquot NI EXFUR ll GDUGI Ind Slwltll I u l BINIEII nIIIIII 12 12 W1 1 4 4 4 5 III 5 1D 75 IE 5 ID 95 W as W A D 5 IE 395 1D 15 IE IS IE IS DD 05 W l WWW WWW 227 The Income Approach to GDP GDP is also defined as i The total income earned from N Newly produced W nal goods and services 4 in the domestic economy during a Equot specified period of time The Income Approach to GDP Five different income measures Gross Domestic Product GDP N Gross ational Product GNP U National income Y gt Private disposable income V39 Net government income The Income Approach to GDP 1 Gross Domestic Product GDP Factor income from the rest of the world Factor payments to the rest of the world Gross National Product GNP The Income Approach to GDP 2 Gross National Product GNP Depreciation Statistical discrepancy National Income The Income Approach to GDP 3 National In come Compensation of Employees Corporate Profits NonCorporate Profits Other Income The Income Approach to GDP v m 15 1s m m s h s uH VI nssuna 111 Ina Uni nunsln Samcs Emu a EcanammAniNSs Hanu my The Income Approach to GDP 4 Private disposable income GDP Net factor income Transfer payments from the government Interest payments on government debt 7 Taxes The Income Approach to GDP 5 Net government in come Vet tax receipts Gross taxes receipts 7 Government transfer payments 7 Interest payments on government debt Real versus Nominal GDP Nominal variables are measured in current dollar terms Real variables are adjusted for changes in prices to re ect only Quantity terms Real versus Nominal GDP Nominal GDP is the dollar value of an economy s final output measured at current market prices Nominal GDP Price Level Real GDP Real versus Nominal GDP 39 Real GDP is an estimate of the value of an economy s final output adjusted for changes in the overall price level Real GDP Nominal GDP Price Level Measuring In ation Measuring In ation A price index measures the weighted average level of prices for some speci ed set ofgoods and services relative to those prices in a specified base year Measuring In ation Three major price indexes 1 The Gross Domestic Product GDP De otor 2 The Personal Consumption Expenditure PCE Deflator 3 The Consumer Price Index Measuring In ation The in ation rate is calculated as 5 PtPt1Pt1 AptPH 7 Where 39 1 is the in ation rate in period t and 39 P1 is aprice index in period t Measuring In ation Innnan Ilulnul by Dl unm Fvln IndXI quot Ea mmum quot Mm Eamumvmn mm 2 ewmemm 2 I a I n v a sun 5 1n 1 In IS in Is no sin Same as ea saw Measuring Unemployment The Unemployment Rate is the percentage of the civilian labor force who are 1 Willing and able to work and 7 Actively looking for work but 3 Who do nothdvejobs Measuring Unemployment Measuring Unemployment The adult population can be categorized as 1 Employed 2 Unemployed 3 Not in the labor force 39 Which includes discouraged workers those Who would like to work but have given up looking for work because they do not believe there are anyjobs available for them 2w Measuring Unemployment The civilian labor force is given by Labor Force Employed Unemployed Measuring Unemployment The following can be calculated Measuring Unemployment Clvlllan unrrulwmnm Rm mle 1 Unemployment Rate UnemployedLabor Force u n 1a m 2 Participatian Rate Labor ForcePopulation n s 3 Emplayment Ratio EmployedPopulation n 55 In Is 10 15 In Is u 55 In new mmuwsusnsmwwms m zrsn Measuring Unemployment Measuring Unemployment LIIIIH FDquot Fl lPlPlllun Rlll EWIuV ImlDPlv llllnn RllID u u u u u u u as u u n 51 u u 59 59 In u 51 51 I 55 in SS 1B 15 la IS In Is all as VIE D 55 la is 1n 15 In Is In IS on as rm WWWmtgHmmm amwubmammmwwms 251 2752 Measuring Interest Rates Measuring Interest Rates An interest rate measures 1 The cast afbarrawing 0 OR 2 The return to saving and lending Measuring Interest Rates There are many different interest rates that differ primarily in their 1 Maturity 2 Liquidity 3 Credit risk Measuring Interest Rates n n as In as 1 15 in is in is on as n Sauces ma Mm Measuring Interest Rates Because interest rates usually move together most macroeconomic models only incorporate one interest rate7THE interest rate Measuring Interest Rates Nominal interest rate 139 rate at which the nominal value of an asset increases over time Real interest rate r rate at which the real value of an asset increases over time 7 Ex ante real rates are based in expected in ation 7 EX postreal rate are based on actual in ation Measuring Interest Rates 1mm Nnmnalu 1 an Nan Vllld Iuvur Rlll ung39anumv Non VIIu u u 12 1 a u I I n n 4 4 55 m ss 19 15 u Is n s an as in Same HvaniMlcs Measuring Interest Rates The importance of real interest rates 7 When the real interest rate is low 39 There is greatw incentive to borrow and invest but 39 There is less incmt ive to save and lend Measuring Interest Rates Measuring Interest Rates The Fisher Equation is the relationship between nominal and ex ante real interest rates 7 The nominal interest rate is given by i r z 7 The real ex ante interest rate is given by ri 7 Given nominal and ex ante real interest rates expected in ation can be calculated as n i r Measuring Interest Rates Measuring Macroeconomic Data Exlluml ID Vut InnMun u u u 25 25 an In 15 15 1m 4m ns ns A III M as at at an al in 11 I 13 5am HvaniMlcs Building macroeconomic models requires Measuring the macroeconomic data N Looking for patterns in the data U Formulating a theory to explain these patterns gt Testing the model against real world experiences Department of Economics Fall 2007 University of California Economics 100B Benkeley Handout for August 30 2007 Today39s Economy PIOfCSSOI Obey Data are taken from 2007 Economlc ReEort of the Presldent ER Table accessed at http i eopJ 4 latm 006 rah h 21 b 1T2 t SA Table accessed at httpwwwcensus oVprodwwwabsstatabhtml and Fr m mm utweb s1tes accessed through the Economlcs Stattsttcs Bne h R m39 http fsbresbrhtml 1 Real GDP Growth Rate ER Table B4 7 Labor Productivity Growth Rate ER Table B50 1960s 44 2000 37 2004 39 all nonfaIm manufactunng all nonfaIm manufactunng 1970s 33 2001 08 2005 3 2 bus1ness only bus1ness only 1980s 31 2002 16 006 9 1960s 28 28 2002 41 69 1990s 31 2003 25 2007H 34 1970s 19 29 2003 37 62 1980s 10 28 2004 27 21 2 UnemploymentER Table B42 1990s 18 37 2005 19 48 1970s 62 2001 47 2005 51 2006 10 40 1980s 73 2002 58 2006 46 2001 25 21 2007H 18 1 6 1990s 58 2003 60 Jul 2007 46 2000 40 2004 55 8 Income Inequality share of total income received by top 20 of families and by bottom 20 and income limit 2004 dollars of top and bottom 20 SA Table 678 5 In ation ER Tables B63 8 B3 p 20 bottom 20 Share lncome Above Share lncome Below CPI GDP CPI GDP 2004 479 00 100000 40 00 24780 Dec to Dec Deflator Dec to Dec Deflator 2000 472 100227 43 26325 1970s 7 1 67 2003 19 21 o 1990 443 86174 46 23608 1980s 50 50 2004 33 28 1980 411 75560 53 22581 1990s 30 23 2005 34 30 2001 16 24 2006 25 32 9 RealMedian FamilyIncome 20045 SA Table 680 2002 24 17 recent 24 Ouly 27 0711 200 54061 706 annually s1nce 2000 2000 55647 12 annually s1nce 1990 4 FederalBudgetDe cit or Sulplus ER Table B80 httpwwwcbogoV 1990 49545 08 annually s1nce 1980 1996 7 107 b1lhon 200 236 b1ll1on 20 731413 b1ll1on 1980 45647 09 annually s1nce 1970 1997 73122 lel1on 2001 128 b1ll1on 2005 731318 b1ll1on 1970 41735 32 annually s1nce 1960 1998 69 b1ll1on 2002 7 158 b1ll1on 2006 731248 b1ll1on 1999 124 lel1on 2003 731378 b1ll1on 2007 7 31244est b1lhon 1039 POVEIU RMES ER Table B33 Debt 90 trilliun male7headed farmhes All farmhes PeoEle 1n Eover 2006 283 41 mllhon 98 mthon 123 365 rmll1on 5 Nominal U5 TwasmylntemstRmes ER Tame B73 2005 287 40 rmlhoh 99 77 rmlhoh 127 370 million mo 1 I 317110 10 I 2000 264 35 mllhon 92 68 mthon 113 316 rmll1on 1980s 885 1059 2003 1 02 401 1990 334 38 mllhon 107 71 mllhon 135 338 rmll1on 1990s 488 667 2004 138 427 1979 304 26 mllhon 92 55 mthon 117 263 rmll1on 2000 585 603 2005 316 429 2001 345 502 2006 473 480 2002 162 0o 461 00 Aug 2007 4 28 0o 453 00 Total US Population m 2007 302 m hon 6 Personal SavingRates ER Table B30 1960s 83 2000 23 2004 21 1970s 96 2001 18 2005 05 1980s 91 2002 24 2006 04 1990s 52 2003 21 2007H 06 Department of Economics Fall 2007 University of California Berkeley Professor Olney Today39s Economy 83007 Page 2 Real GDP 1 900 2005 Unemployment amp In ation Rates 19602006 Federal Government De cits 1 971 2007 Aclual v ersus Trend 14 400 4 12300 7 In ation 7 dollars Aclual Real GDP 12 GDP 10000 tT 39EquotWs 200 2 3 E 5000 I lncrnpluyinent o E g E 6000 r A e g 54200 2 8 E 4000 4 a 400 4 2000 0 o 603971 1 931 1 991 2001 396 5 1 3 3 2 1975 19797 A 95 199 200 as A 0 Fig 1 Real GDP amp trend lines 1900 2006 Fig 2 Unemployment In ation 1960 2006 Fig 3 Federal gov t de cits 1971 2007est Interest Rates 1965 2006 Saving Rate 1 9502006 Productivity Growth Rates 1 961 2006 1 6 V 91 Change In Output per Werker Hour 5year moving averages 5 14 12 r 4 conventional 10 7 home mortgages 3 3 2 s 4 Bernonlh 1 Treasury Bill 2 oi es 1970 1975 19er 1955 1 990 1 995 2000 2005 7 1 o 7 nut 217 Yim 573 Source US Bureau of ECOr IOrTIIC Analysls Table 2 1 Accessed 52507 sourcer BLS webslte accessed 1 12006 Fig 4 Nominal Interest Rates 1965 2006 Fig 5 Personal Saving Rate 1950 2006 Fig 6 Labor Productivity Growth Rate 1960 2006
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