Econ 101 Lec 02

THE DATA OF
MACROECONOMICS
OUTLINE
I. Measuring The Value of
Economic Activity
II. Measuring The Cost of Living
III. Measuring Joblessness
2
It is a capital mistake
to theorize before one
has data. Insensibly,
“
one begins to twist
facts to suit theories,
instead of theories to fit
facts.
- Sherlock Holmes
3
DATA
- facts and statistics collected
together for reference or
analysis
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The Data of
Macroeconomics
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THE DATA OF Gross Domestic Product (GDP) –
MACROECONOMICS the nation’s total income and the
total expenditure on its output of
goods and services
Consumer Price Index (CPI)-
measures the level of prices
Unemployment Rate – the
fraction of workers who are
6 unemployed
Gross Domestic Product
GDP as the total
income of
GDP everyone in the
economy.
GDP as the total
expenditure on the
economy’s output.
National Income Accounting – the accounting

system used to measure GDP and many
8 related statistics
Income, Expenditure, and the
Circular Flow
Circular flow diagram- shows the flow of

goods and services as well as inputs of
production between firms and households in
the economy.
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GDP
Income, Expenditure, and the
Circular Flow
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GDP
Rules for Computing GDP
Adding different goods and services
Used goods and transfer payments
Treatment of inventories
Intermediate goods and value added
Housing services and other imputations
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GDP vs GNP
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REAL GDP
vs
NOMINAL
GDP
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14
Real GDP
Real GDP vs
Nominal GDP the value of goods and
services measured
Nominal GDP using a constant set of
prices or base year
The value of goods prices
and services
measured at current - shows what
prices. would have happened
to expenditure on
output if quantities
had changed but
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prices had not.
The GDP Deflator
- Implicit price deflator for

GDP
- Ratio of nominal GDP to real
GDP
- Reflects what’s happening
to the overall level of prices
in the economy
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The GDP Deflator
Nominal GDP
GDP Deflator = X 100
Real GDP
Nominal GDP
GDP Deflator =
Real GDP
- Used to measure the level of price
changes over time so that current
prices can be accurately compared to
17historical prices.
The GDP Deflator
Nominal GDP = Real GDP x GDP Deflator
Nominal GDP
Real GDP =
GDP Deflator
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GDP and the Population
GDP per capita – the average contribution of one member of the

population to the total GDP
- adjusts for changes in the population
- useful for making comparisons over time and across countries
!"#
GDP per capita =
$%$&'()*%+
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NATIONAL
INCOME
ACCOUNTING
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21
EXPENDITURE
APPROACH
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National Income Accounting Identity
Y = C + I + G + NX
where
Y= GDP
C= Consumption
I= Investment
G= Government Spending
23 NX = Net Exports
CONSUMPTION
- Goods and services bought by households
- 3 subcategories:
- Nondurable goods
- Durable goods
- services
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INVESTMENTS
- Goods bought for future use
- 3 subcategories:
- Business fixed investment
- Residential fixed investment
- Inventory investment
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GOVERNMENT
SPENDING
- Goods and services bought by
federal, state, and local government
(national or local government).
- Military equipment, highways and
other government services
- Does not include transfer payments
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NET EXPORTS
- Value of goods and services
exported to other countries
minus the value of goods
and services that foreigners
provide us
- NX = EXPORT - IMPORT
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INCOME
APPROACH
29
30
VALUE ADDED/INDUSTRIAL
ORIGIN APPROACH
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32
Consumer Price Index
CPI
Consumer Price Index (CPI) -
a measure of the overall level
of prices that shows the cost of
a fixed basket of consumer
goods relative to the cost of
the same basket in a base
year.
CPI 8 Categorization of goods and services used in
CPI
CPI
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CPI vs GDP Deflator
GDP Deflator CPI
Measures the prices of all goods Measures the prices of only the
and services produced. goods and services bought by
consumers.
Includes only those goods Includes prices of imports.

produced domestically.
Assigns changing weights. Assigns fixed weights to the
prices of different goods.
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Measuring Inflation using CPI
in economics, we use 𝜋 to denote inflation

𝐶𝑃𝐼! − 𝐶𝑃𝐼!"#
𝜋= 𝑥100
𝐶𝑃𝐼!"#
where t is the current year while t-1 denotes the previous year
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Three Measures of Inflation
GDP Deflator
Consumer Price Index
Personal Consumption Expenditure Deflator
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CPI, GDP Deflator, and Personal Consumption
Expenditure Deflator (PCE Deflator)
- implicit price deflator for personal consumption expenditures
Similarities with CPI Similarities with GDP Deflator
the PCE deflator includes only the Allows the basket of goods to
prices of goods and services that change over time as the
consumers buy; it excludes the consumption of consumer
prices of goods and services that spending changes
are part of investment and
government purchases
includes the prices of imported
goods.
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Other price indices
producer price index- measures the price of a typical basket of

goods bought by firms rather than consumers
core inflation- measures the increase in price of a consumer basket

that excludes food and energy products. Because food and energy
prices exhibit substantial short-run volatility, core inflation is
sometimes viewed as a better gauge of ongoing inflation trends
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42
Unemployment Rate
Unemployment
Rate
Unemployment
Rate
Employed - those who at the time of

the survey worked as paid
employees, worked in their own
business, or worked as unpaid
workers in a family member’s
business.
- those who were not working but who had jobs from
which they were temporarily absent because of, for
example, vacation, illness, or bad weather.
Unemployment
Rate
Unemployed - those who were not

employed, were available for
work, and had tried to find
employment during the previous
four weeks.
- those waiting to be recalled to a job from which they

had been laid off.
Unemployment
Rate
Not in the labor force - those who fit neither of the first
two categories, such as a full-time student,
homemaker, or retiree.
Unemployment Rate
Labor Force = Number of Employed + Number of Unemployed
Unemployment Rate = Number of Unemployed/Labor Force X 100
48
Unemployment Rate
Labor force participation rate = Labor Force/Adult Population X 100
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THANKS!!!
51
Any questions?

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THE DATA OF

National Income Accounting – the accounting

Circular flow diagram- shows the flow of

- Implicit price deflator for

Nominal GDP = Real GDP x GDP Deflator

GDP per capita – the average contribution of one member of the

Includes only those goods Includes prices of imports.

in economics, we use 𝜋 to denote inflation

producer price index- measures the price of a typical basket of

core inflation- measures the increase in price of a consumer basket

Employed - those who at the time of

Unemployed - those who were not

- those waiting to be recalled to a job from which they

Labor Force = Number of Employed + Number of Unemployed

Unemployment Rate = Number of Unemployed/Labor Force X 100

Labor force participation rate = Labor Force/Adult Population X 100

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