Index

Department of Economics
Saint Louis University
Professor: Rapach
Summer 2009
ECON 312
Intermediate Macroeconomics

Chapter Outline for “Chapter 2—The Data of Macroeconomics,” N. Gregory Mankiw, Macroeconomics, Sixth Edition (New York: Worth Publishers, 2007)

2-1 Measuring the Value of Economic Activity: Gross Domestic Product

National income accounting

Income, Expenditure, and the Circular Flow

See Figure 2-1

FYI: Stocks and Flows

Rules for Computing GDP

Gross domestic product (GDP) is the market value of all final goods and services produced within an economy in a given period of time

Adding Apples and Oranges

Used Goods

The Treatment of Inventories

Intermediate Goods and Value Added

Value added

Housing Services and Other Imputations

Imputed Value

Real GDP Versus Nominal GDP

GDP = (Price of Apples x Quantity of Apples) + (Price of Oranges x Quantity of Oranges)

Nominal GDP

Real GDP

The GDP Deflator

GDP Deflator = [(Nominal GDP)/(Real GDP)] x 100

Nominal GDP = (Real GDP) x (GDP Deflator)

Nominal GDP measures the current dollar value of the output of the economy. Real GDP measures output valued at constant prices. The GDP deflator measures the price of output relative to its price in the base year.

Real GDP = (Nominal GDP)/(GDP Deflator)

Chain-Weighted Measures of Real GDP

FYI: Two Arithmetic Tricks for Working With Percentage Changes

The Components of Expenditure

Y = C + I + G + NX

National income accounts identity

Consumption

Investment

Government purchases

Net exports

FYI: What is Investment?

Case Study: GDP and Its Components

See Table 2-1

Other Measures of Income

GNP = GDP + Factor Payments From Abroad - Factor Payments to Abroad

NNP = GNP – Depreciation

National Income = NNP – Indirect Business Taxes

Compensation of employees (71.3%)

Proprietors' income (9.5%)

Rental income (1.4%)

Corporate profits (12.4%)

Net interest (5.4%)

Personal Income = National income – Corporate Profits – Social Insurance Contributions – Net interest + Dividends + Government Transfers to Individuals + Personal Interest Income

Disposable Personal Income = Personal income – Personal Tax and Nontax payments

Seasonal Adjustment

2.2 Measuring the Cost of Living: The Consumer Price Index

The Price of a Basket of Goods

Consumer price index (CPI)

CPI = [Current Cost of Market Basket)/(Base-Year Cost of Market Basket)] x 100

The CPI Versus the GDP Deflator

See Figure 2-3

Case Study: Does the CPI Overstate Inflation?

2-3 Measuring Joblessness: The Unemployment Rate

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

See Figure 2-4

Case Study: Trends in Labor-Force Participation

See Figure 2-5

The Establishment Survey

2-4 Conclusion: From Economic Statistics to Economic Models

Questions for Review: 1, 3, 4

Problems and Applications: 2, 3 (in-class), 4, 5, 6, 8 (in-class), 9