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Measurement
Topics
Measuring GDP
Three approaches
An example
Nominal and real GDP
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Measurement
Measuring GDP
GDP: The value of all final goods and services produced during a
given period of time within a countrys borders.
Three approaches measuring GDP
The product approach
The expenditure approach
The income approach.
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Measurement
Measuring GDP
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Measurement
Measuring GDP
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Measurement
Measuring GDP
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Measurement
Measuring GDP
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Measurement
Measuring GDP
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Measurement
Measuring GDP
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Measurement
Measuring GDP
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Measurement
Measuring GDP
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Measurement
Measuring GDP
Nominal GDP
Real GDP (Yr 1)
Real GDP (Yr 2)
Chain-weighted Real GDP (Yr 1)
Chain-weighted Real GDP (Yr 2)
Year 1
$ 130.00
$ 130.00
$ 222.50
$ 130.00
$ 219.05
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Year 2
$ 292.00
$ 176.00
$ 292.00
$ 173.29
$ 292.00
Growth Factor
2.246
1.354
1.312
1.333
1.333
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Measurement
Measuring GDP
Figure
Nominal
and 2.1
Real GDP
Kim (Sogang
University)
2014 Pearson
Education, Inc.
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Measurement
Measuring GDP
Components of GDP
Yt = Ct + It + Gt + NXt
C: consumption of non-durables and services and durable goods by
households (70%)
I : expenditure of firms on new plant and equipment, new residential
construction, and changes in inventories (15%)
G: government expenditure (roads, military, police, etc.) (20%)
NX: net exports of goods and service (-5%)
Korea: C 53%, I 30%, G 15%, NX 2%
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Measurement
Measuring GDP
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60
65
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75
80
85
90
95
Introduction
00
05
10
Fall 2010
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ECO2007
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Measurement
Measuring GDP
Components of GDP
Components
of GDP
Consumption
Investment
9.5
8.0
7.5
9.0
7.0
8.5
6.5
8.0
6.0
7.5
5.5
7.0
5.0
1950
1960
1970
1980
1990
2000
2010
1950
1960
Government Spending
1970
1980
1990
2000
2010
2000
2010
8.0
.02
7.5
.00
7.0
-.02
6.5
-.04
6.0
5.5
-.06
1950
1960
1970
1980
1990
2000
2010
1950
1960
1970
1980
1990
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Measurement
Measuring GDP
Detrending
Macro is traditionally divided into two time scales long run and
short run
Business cycles defined as movements around long run trend
To see cycles more clearly, want to remove this trend Detrending
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Figure 1.13
Measurement
Measuring GDP
Percentage Deviation From Trend in Real GDP
Detrended GDP
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Measurement
Measuring GDP
Observations
Great Moderation:
Plot looks smoother after early 1980s
1950-1982: average 2 recessions per decade; 1982-: about 1.5
Post 1982 recessions not nearly as deep (Great Recession is the
exception)
Great Recession:
Rooted in the financial crisis in the U.S., and subsequently spread to
the rest of the world
Illustrates the importance of financial market factors for aggregate
economy.
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Measurement
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Measurement
Figure 3.1
Idealized Business
Cycles
Describing
Business Cycles
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Measurement
Business
Cycles
Figure
3.2
Percentage Deviations from Trend in
Real
GDP
Percentage Deviations from Trend in Per Capita Real GDP
2014 Pearson
Education, Inc.
Kim (Sogang
University)
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Measurement
Features of GDP
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Measurement
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Measurement
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Measurement
Figure 3.9
Behavior
of Key Macroeconomic Variables Consumption
Percentage Deviations from Trend in
Real Consumption and Real GDP
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Measurement
Figure
3.10Macroeconomic Variables Investment
Behavior
of Key
Percentage Deviations from Trend in Real
Investment and Real GDP
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Measurement
Behavior
of Key
Figure
3.12Macroeconomic Variables Prices
Price Level and GDP
Percentage Deviations from Trend in the Price Level and Real GDP
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Measurement
Behavior
of Key
Figure
3.13 Macroeconomic Variables Money Supply
Percentage Deviations from Trend in the
Money
Supply
andfrom
Real
GDP
Percentage
Deviations
Trend
in Money Supply and Real GDP
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Measurement
Figure
3.14Macroeconomic Variables Employment
Behavior
of Key
Percentage Deviations from Trend in Employment
and Real GDP
Percentage Deviations from Trend in Employment and Real GDP
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Measurement
Figure
Behavior
of 3.16
Key Macroeconomic Variables APN
Percentage Deviations from Trend in Average Labor Productivity and Real GDP
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Measurement
Table 3.1
Behavior
of Key Macroeconomic
Variables
Correlation
Coefficients and Variability
of Summary
Percentage Deviations from Trend
1-
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Measurement
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Measurement
Nominal GDP
100
Real GDP
CPI:
Cost of base year quantities at current prices
100
Cost of base year quantities at base year prices
Inflation is Pt /Pt 1 1.
Problems
Consumers substitute away from products with higher than average
price growth
Changes in the quality of goods
New goods
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Measurement
Measuring
the Price Level
Figure 2.3
The Price Level as Measured by the CPI and the
Implicit GDP Price Deflator
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Measurement
Figure
Measuring
the2.2Price Level
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