TOPIC 1TOPIC 1
Idi M D
I
ntro d uct i on to
M
acro
D
ata
Goals and Outline of Topic 1
1. Gross Domestic Product (GDP)
– What is Gross Domestic Product and how we measure it? Why is this measure im p ortant? p
– What are the definitions of the major expenditure components?
– What are the trends in these components over time?
2
Inflation
2
.
Inflation
– What is the difference between ‘Real’ and ‘Nominal’ variables?
– How is inflation measured?
3. Interest Rate
– How is inflation measured?
– Why do we care about Inflation?
4. Unemployment
– How is Unemployment measured?
– Why do we care about Unemployment?
2
PART I: GDP
Gross Domestic Product (GDP)
• GDP is a measure of output!
• Why Do We Care?
–
Because output is highly correlated (at certain times) with things we care about
(standard of living, wages, unemployment, inflation, budget and trade deficits, value of currency, etc...)
• Formal Definition:
–
GDP is the
Market Value of all
Final Goods and Services
Newly
Produce d on
Domestic Soil
During a Given
Time Period
(different than GNP)
4
Three ways of measuring GDP
•
Production Method
: Measure the Value Added summed across all firms (value added
=
sale price less cost of raw firms (value added sale price less cost of raw materials)
•
Income Method
:
Labor Income (wages/salary) +
Income
Method
:
Labor
Income
(wages/salary)
+
Capital Income (rent, interest, dividends, profits)+
Government Income (taxes)
•
Expenditure Method
: Spending by consumers (C) + Spending by businesses
(I) + Spending by government (G) + Net Spending by forei g n sector
(
NX
)
g()
•
Fundamental identity of national income account
:
5 total production = total income = total expenditure
A simple example of how GDP is measured
What is the total value (in dollars) of th