What is Macroeconomics?
Data
Macroeconomics II
Lecture 1: Introduction to Macroeconomics
Tom´aˇs Lichard
What is Macroeconomics?
Data
What do we study?
How do we study it?
What is macroeconomics?
Macroeconomics:
studies the whole economy
main variables: real GDP, inflation, unemployment usually dynamic setting
Topics:
Long term: Why some countries grow more quickly?
Short term: Why do we have recessions and depressions?
What can we do about it? Is it working?
Tom´aˇs Lichard Macroeconomics II
What is Macroeconomics?
Data
What do we study?
How do we study it?
GDP
Figure : US real GDP per capita
400012000 2000028000 3600044000GDP (2005 USD)
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 year
Data source: US BEATom´aˇs Lichard Macroeconomics II
What is Macroeconomics?
Data
What do we study?
How do we study it?
Inflation
Figure : US Inflation
051015inflation (%)
1960 1970 1980 1990 2000 2010
year
Tom´aˇs Lichard Macroeconomics II
What is Macroeconomics?
Data
What do we study?
How do we study it?
Unemployment
Figure : US unemployment
46810Unemployment (%)
1960 1970 1980 1990 2000 2010
year
What is Macroeconomics?
Data
What do we study?
How do we study it?
Models
Example: Supply and demand
exogenous vs. endogenous variables model assumptions and realism
Tom´aˇs Lichard Macroeconomics II
What is Macroeconomics?
Data
What do we study?
How do we study it?
Microeconomic foundations
Microeconomics: study of decisions of firms and consumers Macroeconomics: implicit vs. explicit modeling:
Trade-off between tractability and realism based on the question studied
What is Macroeconomics?
Data GDP
CPI - Cost of living Unemployment
Why Do We Need Data?
One cannot make conclusions based on casual observations The plural of “anecdote” is NOT “data”!
The criterion of a model’s worth is how it fits the data - “The great tragedy of Science - the slaying of a beautiful hypothesis by an ugly fact.” (Thomas Huxley)
Tom´aˇs Lichard Macroeconomics II
What is Macroeconomics?
Data GDP
CPI - Cost of living Unemployment
Stock and Flow
Two types of variables:
1 Stock - Quantity measured at a given instance: number of unemployed, amount of capital etc.
2 Flow - Quantity measured per a unit of time - GDP (annual, quarterly...), number of jobs created per year etc., investment, depreciation etc.
What is Macroeconomics?
Data GDP
CPI - Cost of living Unemployment
GDP
Measures the performance of economy - primary sources of data:
government - tax collection agencies, regulation etc.
survey of businesses 2 ways of looking at it:
1 sum of income of every person in the economy
2 sum of all expenditures in the economy
Tom´aˇs Lichard Macroeconomics II
What is Macroeconomics?
Data GDP
CPI - Cost of living Unemployment
Income, Expedinture and Circular Flow
Flow of goods, factors and money
⇒GDP - the market value of all final goods and services produced within economy in a given period of time
Rules:
used goods inventories
intermediate goods and value added imputed values
What is Macroeconomics?
Data GDP
CPI - Cost of living Unemployment
Nominal vs. Real GDP
GDP deflator = Nominal GDP Real GDP
Chain-weighted measures of real GDP - use average prices between two years to compute GDP growth
Lesson is the same: we have to take into account price changes when evaluating performance of an economy across years!
Tom´aˇs Lichard Macroeconomics II
What is Macroeconomics?
Data GDP
CPI - Cost of living Unemployment
Components of Expedinture
National income accounts identity:
Y =C +I+G+NX C: nondurables, durables, services
I: business fixed investment, residential fixed investment, inventory investment;
what is investment?
G: government purchases NX: net exports
What is Macroeconomics?
Data GDP
CPI - Cost of living Unemployment
Other Measures of Income
GNP =GDP+ Factor Payments from Abroad
−Factor Payments to Abroad
NNP=GNP−Depreciation
NI =NNP+ statistical discrepancy
→Compensation of employees, proprietor’s income, rental income, corporate profits, net interest, indirect business taxes
Tom´aˇs Lichard Macroeconomics II
What is Macroeconomics?
Data GDP
CPI - Cost of living Unemployment
Personal Income
Personal Income = NI
−Indirect Business Taxes +Dividends−Corporate Profits +Government Transfers to Individuals
−Social Security Contributions
+Personal Interest Income−Net interest
Disposable Personal Income = Personal Income−Personal Tax
−Nontax Payments
What is Macroeconomics?
Data GDP
CPI - Cost of living Unemployment
CPI
Inflation - increase in the overall level of prices Basket of goods consumed by a typical household
Another indexes: PPI, specific types of goods (food, housing, and energy; core inflation)
Tom´aˇs Lichard Macroeconomics II
What is Macroeconomics?
Data GDP
CPI - Cost of living Unemployment
CPI vs. Deflator
Types of goods measured Origin of goods measured Aggregation of prices:
Paasche index = Σ(pc,tn·qc,tn)
Σ(pc,t0·qc,t0) Laspeyres index = Σ(pc,tn·qc,t0)
Σ(pc,t0·qc,t0)
What is Macroeconomics?
Data GDP
CPI - Cost of living Unemployment
CPI vs Deflator
Figure : CPI vs Deflator - Czech Republic
−50510%
01 Jan 07 01 Jan 08 01 Jan 09 01 Jan 10 01 Jan 11 Period
CPI change Deflator change
Tom´aˇs Lichard Macroeconomics II
What is Macroeconomics?
Data GDP
CPI - Cost of living Unemployment
Unemployment
Workers - chief resource of an economy
Total Adult Population = Labor Force + Out of Labor Force
Labor Force = Number of Employed + Number of Unemployed
UR = # of unemployed Labor Force
Labor Force Participation = Labor Force Total Adult Population
What is Macroeconomics?
Data GDP
CPI - Cost of living Unemployment
Labor Force Participation
Figure : Labor Force Participation in the US
20406080100%
1940 1960 1980 2000 2020
Year
Male Female
Tom´aˇs Lichard Macroeconomics II
