intro Macro GDP
macroeconomicsstudy of economy as a whole
long run growth ofwelfare
contraction
Economic cycles afteryears of economics expansion follows a period of I wishunemployment
fluctuations badeconomic prospects
macroeconomicsaggregates variables averagessums thatkeeptrack
of the outcomes ofdecisionsof a lot offirms households otheragents
GDP Cpi moneysupply imports
GDPpercapita averageincome
GDPGrossDomesticProduct
GDP the market value of au finalgoods ofservices produced within a countryin a giventime
marketprice goodindicatorof relativeimportance of goods
not all products ilegal home produced products cleaningcooking
final not intermediate
goods services tangible goods intangible services
not include anythingproduced before periodwhenGDPcalculated
whatmatters is the place of production not the nationality if
Spanishcompanypred
period of time of usually a year in ChinacountsinChina's
GDP
value added difference between the priceof thatgeed d the value of the intermediate
goods used to produce it
value addedproducing a geed is equal toits marketvalue
market valueof finalgoods valueadded etau goods
GDP is equaltothemarket value of final goods or thevalueadded in prod of all good
Valueadded becomesreturn to productive factors
wages p
Returntoproductive factors
valueadded s Rents
earned 4Profits 11
households income
valueofintermediate
goods
GDP wagest rents profits Y income
Ex Orangejuice
value of grass of price 2.20
value of oranges 0,70 intermediate
valueadded 2 D O to I 50
, Ex Production
of baguettes
Bakery Mill
Farm
Baguettes wheat
Flour
Production 200 no 50 Valueadded
Price 50cats iscents e Finalproduct intermediate
valueofProd 100 60 50
Valuebladed 2000.5 401.51 401.5box 50
40 10 valueofwheat
100 alreadyincluded
before
GDP Expenditure
GDP total Expenditure
genders households firms publicsector foreign sector
Leach spentbysectors
consumptioncc households GDP 4 Ct It Gt Nx
daily spendings clothes food
indeed
AI renters consumption esrent
homeowners consumptionincludes imputedrentalvalueof house whatyou'dpay
but i
doesn't ncludepurchaseprice mortgage it if
wasrated
investment l
spending on goods that willbeused in the futureto producemoregoods
includes capital equipment machines structures factoriesoffices inventories involuntaryinvestmen
Governmentpurchases
CG
spending bygoverment at national regional or municipal
notincluded subsidies pensions unemployment counted in sectorthatspend it
transferredtoothersectorsbutnot purchas
wetExports Wx
Exports foreign spending on the economy's goods services
Imports portions of private consumption investment and public expenditures that are
spent on goods services produced abroad
NX Exports Imports
NOMINAL
4 REALGDP
we use marketpriceto measureGDP 4 in aproduced
a if i in GDPwecan'tbe sure if its due to fr in prices
I
nominalGDP totalprodof goods services valued at current prices
currentprices prices of each
year
RealGDP total production ofgoods services valued at constant prices
constant prices price of the base gear
, calculation Example
Baseyear
PriceGood Qgood Paged QGood Nominal GDP
deflator
1 a GDP p
2006 2 3 to 4 5 2 20 4 2 28 3 10 5 2 40 2840 100 70
2007 3 3 12 5 5 4 312 5 4 56 3 12 5 4 56 5656 100 100
2008 y 3 15 6 5 5 4 15 6 5 90 3 15 1551 70 9 0 100 129
2009 5 3 20 7 5 6 5 20 7 6 142 3 20 5 6 90 vivo noo is
Inflation 10070 70 Moo 43
rate 129100 100 1 29
157129 129 100 22
GDPDeflator
Changes in ratiobetween wonGDP RealGDPreflect changes inoverallpricelevelof theeconomy
GDPdefeater nominalGDP
realGDP
Inflationrate canbemeasured as the change in the GDP deflator
GDP 4 LIVING STANDARDS
larger GDP betterqualityoflife TGDPbetter healthcare
tGDPbetterstudies
it GDP more work competitiveattributes
GDPdoesntairedgmeasurethingsthat make life worthwhile butmeasures ourabilitytoobtaininp
for a worthwhilelif
GDPnotperfectmeasure of well being someattributes left out
c eg leisure
admiresoutsidemarket
qualityet environment
distribution ofincome
Differences in crisppercapita
physicalcapital
humancapital otherthings productivity of workforce education Thuman Porcher
NaturalResources otherthings 9 naturalresources 9GBP needsto beuece car count
managed
technological knowledge otherthings 4tech TGDP
However havingonly 1 ofthese doesn't mean 9GDP e s Africa dgnaturalresources
,9 Savings Investemenly Cpi
Labor Macleel
SAVINGS INVESTMENT
investment crucial forlong run growth
Investment capitalstock Productivity Incomes
t
wheredoesit comefrom
how to build it
up
households firms Privatesector National totalsavings in an economy
Government public sector savings
IDENTITIES
Nationalsavings s totalincomein the economythatremainsafterpaying forconsumption Gowmentpurchas
Privatesavings Spr income that households have left after payingtaxes consumption
Public savings Spn tax revenue that geronent has left after paying for its spending
Budgetsurplus an excessof taxrevenue overgorementspending
BudgetDeficit a shortfall taxrevenue from government spending
of
Disposableincome Yd i yd Y income T Hax
Yd cconsumption sp privatesavings f Spr Y T C
PublicSavings Spu tax Gcgovement t Spu Spu TG
NationalSavings S s Spr Spu
S YT c Tta y c G S I
Savings Investments
GDP Y Ct I t G t ng c c y c c
assuminga
closedeconomy
SAVINGS vs valueof
by households
INVESTMENTS consumed
in dosed economy where part of GDP isnt l
spentbypublicsector
f saved investment
if firmswanttoinvest lessthanwhat households or publicsectorwant to save
1 consumption
T inventory unintended investment
onproduction
,MARKETOF LOANABLEFUNDS MLF
financialsystem setof firmsmarketsdginstitutions that link investors whowant toborrow to
savers whowant to lend
alternativestoborrowers leaders
commercialbanks
bondsmarket i
onlyborrowmoney
stockmarket more risksthan bond out can more finance
mutualfunds portfolio of shares bonds
gie
in MLFmarket
savers lenders that supply loanablefunds price is interest rate
s investors borrowers thatdemand loanable funds 4
interest rate price calculated as of amountborrowed charged bya lenderto a
borrower forusing their savings for a period oftime
LRealinterestrate adjusted forchanges inprices
nominalinterestrate unadjusted for charges in prices
Real interestrate nominalinterestrate inflationrate
DEMAND for LOANABLEFunds
fromhouseholds firms who wishtoborrow to make investments machinery new houses
depends oninterestrate
r
ay I rate AQdemanded ofLe
d i
ay
i
i i D
so so F
supplyfor LOANABLEFunds
fromhouseholds firms whohaveextraincomeline wanttosave lendout
depends oninterestrate
r s
a1
9 rate TQ supplied ofLe
ay
fi i
i
i i
i
so so F
Equilibrium in MLF
supply
excess s
7 T excess supplyof LF
dt r than eq r dr towardseg
Eg i i
i l
I l D
u so F
, MLF CHANGES in incentives to save
9Privatesavings
r n s
se
5 asinprivatesavings expandnationalsavings
3 1 ii i
i sa egrate A savings q 9 investment equilibrium
1 Dsr
soso I
i Fiscalincentives to save wouldendup in 9savings A investment d r
will favor the rich Yes
i will reduce consumption
9PublicDeficits
r s
s a9 in publicdeficits
7 T eg r
H g i t es level of savings acapitalstockinlongterm
i
ie D f investment
ro so e
T c G PublicDeficit St s asavingstines
T SG Publicsurplus tocapitalstock
7 G Balance Budget
LABORMARKET
statisticsoffices in each countrycollectinfoabout labor market through household surveys
Labor
Force
0 Employed
paid selfemployed unpaidinfamilybusiness who worksehlweek
unemployed activelylooking for ajob
Not in laborforce studentschildren elderly
Unemploymentrate u of unemployed coo
Laborforce
laborforceparticipation laborforce too
rare populationover16
naturalrate of unemployment normalrate of unemploymentaroundwhich the actual unemployment ra
actuates
cyclical componentof unemployment closelyassociated to econ situation
its fluctuations aremainlydue tochanges indemandfor workers6g firms
can beaffected by economic policies that reduce the severity ofeconrecessions
frictional unemployment period between leaving a job finding a new one
macroeconomicsstudy of economy as a whole
long run growth ofwelfare
contraction
Economic cycles afteryears of economics expansion follows a period of I wishunemployment
fluctuations badeconomic prospects
macroeconomicsaggregates variables averagessums thatkeeptrack
of the outcomes ofdecisionsof a lot offirms households otheragents
GDP Cpi moneysupply imports
GDPpercapita averageincome
GDPGrossDomesticProduct
GDP the market value of au finalgoods ofservices produced within a countryin a giventime
marketprice goodindicatorof relativeimportance of goods
not all products ilegal home produced products cleaningcooking
final not intermediate
goods services tangible goods intangible services
not include anythingproduced before periodwhenGDPcalculated
whatmatters is the place of production not the nationality if
Spanishcompanypred
period of time of usually a year in ChinacountsinChina's
GDP
value added difference between the priceof thatgeed d the value of the intermediate
goods used to produce it
value addedproducing a geed is equal toits marketvalue
market valueof finalgoods valueadded etau goods
GDP is equaltothemarket value of final goods or thevalueadded in prod of all good
Valueadded becomesreturn to productive factors
wages p
Returntoproductive factors
valueadded s Rents
earned 4Profits 11
households income
valueofintermediate
goods
GDP wagest rents profits Y income
Ex Orangejuice
value of grass of price 2.20
value of oranges 0,70 intermediate
valueadded 2 D O to I 50
, Ex Production
of baguettes
Bakery Mill
Farm
Baguettes wheat
Flour
Production 200 no 50 Valueadded
Price 50cats iscents e Finalproduct intermediate
valueofProd 100 60 50
Valuebladed 2000.5 401.51 401.5box 50
40 10 valueofwheat
100 alreadyincluded
before
GDP Expenditure
GDP total Expenditure
genders households firms publicsector foreign sector
Leach spentbysectors
consumptioncc households GDP 4 Ct It Gt Nx
daily spendings clothes food
indeed
AI renters consumption esrent
homeowners consumptionincludes imputedrentalvalueof house whatyou'dpay
but i
doesn't ncludepurchaseprice mortgage it if
wasrated
investment l
spending on goods that willbeused in the futureto producemoregoods
includes capital equipment machines structures factoriesoffices inventories involuntaryinvestmen
Governmentpurchases
CG
spending bygoverment at national regional or municipal
notincluded subsidies pensions unemployment counted in sectorthatspend it
transferredtoothersectorsbutnot purchas
wetExports Wx
Exports foreign spending on the economy's goods services
Imports portions of private consumption investment and public expenditures that are
spent on goods services produced abroad
NX Exports Imports
NOMINAL
4 REALGDP
we use marketpriceto measureGDP 4 in aproduced
a if i in GDPwecan'tbe sure if its due to fr in prices
I
nominalGDP totalprodof goods services valued at current prices
currentprices prices of each
year
RealGDP total production ofgoods services valued at constant prices
constant prices price of the base gear
, calculation Example
Baseyear
PriceGood Qgood Paged QGood Nominal GDP
deflator
1 a GDP p
2006 2 3 to 4 5 2 20 4 2 28 3 10 5 2 40 2840 100 70
2007 3 3 12 5 5 4 312 5 4 56 3 12 5 4 56 5656 100 100
2008 y 3 15 6 5 5 4 15 6 5 90 3 15 1551 70 9 0 100 129
2009 5 3 20 7 5 6 5 20 7 6 142 3 20 5 6 90 vivo noo is
Inflation 10070 70 Moo 43
rate 129100 100 1 29
157129 129 100 22
GDPDeflator
Changes in ratiobetween wonGDP RealGDPreflect changes inoverallpricelevelof theeconomy
GDPdefeater nominalGDP
realGDP
Inflationrate canbemeasured as the change in the GDP deflator
GDP 4 LIVING STANDARDS
larger GDP betterqualityoflife TGDPbetter healthcare
tGDPbetterstudies
it GDP more work competitiveattributes
GDPdoesntairedgmeasurethingsthat make life worthwhile butmeasures ourabilitytoobtaininp
for a worthwhilelif
GDPnotperfectmeasure of well being someattributes left out
c eg leisure
admiresoutsidemarket
qualityet environment
distribution ofincome
Differences in crisppercapita
physicalcapital
humancapital otherthings productivity of workforce education Thuman Porcher
NaturalResources otherthings 9 naturalresources 9GBP needsto beuece car count
managed
technological knowledge otherthings 4tech TGDP
However havingonly 1 ofthese doesn't mean 9GDP e s Africa dgnaturalresources
,9 Savings Investemenly Cpi
Labor Macleel
SAVINGS INVESTMENT
investment crucial forlong run growth
Investment capitalstock Productivity Incomes
t
wheredoesit comefrom
how to build it
up
households firms Privatesector National totalsavings in an economy
Government public sector savings
IDENTITIES
Nationalsavings s totalincomein the economythatremainsafterpaying forconsumption Gowmentpurchas
Privatesavings Spr income that households have left after payingtaxes consumption
Public savings Spn tax revenue that geronent has left after paying for its spending
Budgetsurplus an excessof taxrevenue overgorementspending
BudgetDeficit a shortfall taxrevenue from government spending
of
Disposableincome Yd i yd Y income T Hax
Yd cconsumption sp privatesavings f Spr Y T C
PublicSavings Spu tax Gcgovement t Spu Spu TG
NationalSavings S s Spr Spu
S YT c Tta y c G S I
Savings Investments
GDP Y Ct I t G t ng c c y c c
assuminga
closedeconomy
SAVINGS vs valueof
by households
INVESTMENTS consumed
in dosed economy where part of GDP isnt l
spentbypublicsector
f saved investment
if firmswanttoinvest lessthanwhat households or publicsectorwant to save
1 consumption
T inventory unintended investment
onproduction
,MARKETOF LOANABLEFUNDS MLF
financialsystem setof firmsmarketsdginstitutions that link investors whowant toborrow to
savers whowant to lend
alternativestoborrowers leaders
commercialbanks
bondsmarket i
onlyborrowmoney
stockmarket more risksthan bond out can more finance
mutualfunds portfolio of shares bonds
gie
in MLFmarket
savers lenders that supply loanablefunds price is interest rate
s investors borrowers thatdemand loanable funds 4
interest rate price calculated as of amountborrowed charged bya lenderto a
borrower forusing their savings for a period oftime
LRealinterestrate adjusted forchanges inprices
nominalinterestrate unadjusted for charges in prices
Real interestrate nominalinterestrate inflationrate
DEMAND for LOANABLEFunds
fromhouseholds firms who wishtoborrow to make investments machinery new houses
depends oninterestrate
r
ay I rate AQdemanded ofLe
d i
ay
i
i i D
so so F
supplyfor LOANABLEFunds
fromhouseholds firms whohaveextraincomeline wanttosave lendout
depends oninterestrate
r s
a1
9 rate TQ supplied ofLe
ay
fi i
i
i i
i
so so F
Equilibrium in MLF
supply
excess s
7 T excess supplyof LF
dt r than eq r dr towardseg
Eg i i
i l
I l D
u so F
, MLF CHANGES in incentives to save
9Privatesavings
r n s
se
5 asinprivatesavings expandnationalsavings
3 1 ii i
i sa egrate A savings q 9 investment equilibrium
1 Dsr
soso I
i Fiscalincentives to save wouldendup in 9savings A investment d r
will favor the rich Yes
i will reduce consumption
9PublicDeficits
r s
s a9 in publicdeficits
7 T eg r
H g i t es level of savings acapitalstockinlongterm
i
ie D f investment
ro so e
T c G PublicDeficit St s asavingstines
T SG Publicsurplus tocapitalstock
7 G Balance Budget
LABORMARKET
statisticsoffices in each countrycollectinfoabout labor market through household surveys
Labor
Force
0 Employed
paid selfemployed unpaidinfamilybusiness who worksehlweek
unemployed activelylooking for ajob
Not in laborforce studentschildren elderly
Unemploymentrate u of unemployed coo
Laborforce
laborforceparticipation laborforce too
rare populationover16
naturalrate of unemployment normalrate of unemploymentaroundwhich the actual unemployment ra
actuates
cyclical componentof unemployment closelyassociated to econ situation
its fluctuations aremainlydue tochanges indemandfor workers6g firms
can beaffected by economic policies that reduce the severity ofeconrecessions
frictional unemployment period between leaving a job finding a new one
