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.

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 Personal consumption expenditures 8,060.2 8,153.8 8,282.5 8,423.3 8,542.8

3    Durable goods 976.3 975.5 1,007.0 1,017.0 1,023.6

4    Nondurable goods 2,316.6 2,354.6 2,387.2 2,449.7 2,490.0

5    Services 4,767.3 4,823.8 4,888.2 4,956.6 5,029.2

6 Gross private domestic investment 1,819.7 1,920.7 1,947.0 2,021.9 2,084.6

7    Fixed investment 1,783.5 1,861.7 1,915.4 1,975.3 2,015.2

8       Nonresidential 1,158.8 1,198.5 1,238.5 1,286.3 1,305.9

9          Structures 266.0 275.5 281.2 290.0 294.9

10          Equipment and software 892.8 923.1 957.3 996.3 1,011.0

11       Residential 624.6 663.2 677.0 688.9 709.3

12    Change in private inventories 36.2 59.0 31.6 46.7 69.4

13 Net exports of goods and services -546.8 -591.3 -611.8 -674.8 -693.6

14    Exports 1,134.3 1,167.6 1,189.5 1,210.4 1,244.5

15       Goods 790.3 812.2 833.4 845.5 872.5

16       Services 344.1 355.4 356.1 365.0 372.0

17    Imports 1,681.2 1,758.9 1,801.2 1,885.2 1,938.1

18       Goods 1,399.2 1,470.1 1,506.9 1,587.2 1,632.9

19       Services 282.0 288.8 294.4 298.1 305.2

20Government consumption expenditures    and gross investment

2,139.5 2,174.3 2,197.2 2,224.5 2,257.9

21    Federal 793.3 804.4 817.4 824.6 842.0

22       National defense 534.1 541.2 557.0 559.4 571.1

23       Nondefense 259.1 263.2 260.4 265.2 270.9

24    State and local 1,346.3 1,369.9 1,379.8 1,399.9 1,415.9

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).

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

2Plus: Income receipts from the rest of    the world

373.8 388.0 406.8 454.7 457.7

3Less: 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

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

Equals: National income10,128.1

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 assets1,33

7.11,35

2.31,36

7.81,49

1.91,416.3

         Personal current transfer             receipts

1,379.0

1,400.4

1,415.4

1,428.9

1,469.0

Equals: Personal income9,44

5.09,59

2.79,70

0.410,020.1

10,100.2

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.

Issues

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

• GDP excludes illegal activity

• GDP doesn’t count “externalities”

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.

•

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?

•

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?

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 haven’t 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

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.

Year Jan

1996154.4

1997159.1

1998161.6

1999164.3

2000168.8

2001175.1

2002177.1

2003181.7

2004185.2

2005190.7

2006198.3

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

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?

Cool Web Site

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

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.

The Simplest (and maybe most misleading) Macro Model

Definitions

• Y = total gross domestic product

• C = Consumption

• G= Government Expenditures

• T= Tax

• I= Investment Expenditure

Assumptions

• C = a + b(Y-T) (b is the “marginal propensity to consume”)

• Y = C+I+G (no international trade—we’ll fix that latter).

Conclusion and Implications

• Y = [a+I+G-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)

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).