1
Chapter 2
The Major
Macroeconomic
Variables
0
10
20
30
40
90 91 92 93 94 95 96 97 98 99 00
Outlines (1)
? 2.1 GDP & GNP
? 2.2 three approaches to
measure GDP
? 2.3 NI & PI & DPI
? 2.4 MPS vs SNA
? 2.5 saving and wealth,
stock and flow
? 2.6 price index and Inflation Rate
? 2.7 nominal interest rate
and real interest rate
? 2.8 employment,unemployment,
& wage level
Outlines (2)
? definition
?GDP
?GNP
? comparison
?GDP, domestic principle
?GNP, national principle
2.1 GDP & GNP
? relation
? definition of NFP
N F PG N PG D P ??
2.1 GDP & GNP
?Nominal and Real GDP
?Nominal GDP is the sum of the quantities
of final goods produced times their
current price,
?Real GDP is the sum of the quantities of
final goods produced times constant
(rather than current) price,
2.1 GDP & GNP
7
?final goods and services vs,
intermediate products
?Products vs,commodities
?Market vs,non-market
2.1 GDP & GNP
case1,
make wine
Price of
final goods
Price of
intermediate
products
Increment
Wheat 100 0 100
flour 150 100 50
Bread 250 150 100
retail 300 250 50
total 800 500 300
Case2,from wheat to bread
?limitation of GDP (GNP）
?non-market activities
?diversity in standard of living
?Income distribution
?Natural resource & environment
2.1 GDP & GNP
2.2 Three Approaches to
Measure GDP
? Product approach
?Definition,GDP is the value of the Final
Goods and Services Produced in the Economy
During a Given Period,
12
? Product approach
?Note,
?Market value
?New product and service
?Final product and service
2.2 Three Approaches to
Measure GDP
? Product approach
GDP is the Sum of Value Added in the
Economy During a Given Period,
2.2 Three Approaches to
Measure GDP
? expenditure approach
?Four categories of expenditure
? consumption （ C）
? investment （ I ）
? government purchase （ G）
? net export（ NX）
2.2 Three Approaches to
Measure GDP
? expenditure approach
NXGICG D P ????
2.2 Three Approaches to
Measure GDP
Case3,
Case4,GDP and components 1997 of china
components Total（ billions of Yuan） Percentage （ %）
consumption 36117.8 47.48
Investment 27867.3 36.63
Government
purchase 9347.1 12.28
Net exports 2745.0 3.61
GDP 76077.2 100
source：,China statistics,1998,
?income approach
GDP is the Sum of incomes in the Economy
During a Given Period,
2.2 Three Approaches to
Measure GDP
?income approach
?Five categories of expenditure （ NI）
?Labor income
?Capital income
?Rate earnings
?Company profit
?Net interest
2.2 Three Approaches to
Measure GDP
?income approach
?The other three items
? Indirect taxes
? depreciation
? NFP
2.2 Three Approaches to
Measure GDP
2.3 NI,PI and DPI
?Basic terms
?GDP,gross domestic product
?GNP,gross national product
?NNP,net national product
?NI,national income
?PI,personal income
?NFP,net foreign product
GNP
depreciation
NNP
Indirect
taxes
NI
PI=NI
-Co,Profit
-social
insurance
+transfer
payment
+net
interest
+bonus
income
tax& non-
tax
payment
DPI
2.3 NI,PI and DPI
2.4 MPS vs,SNA
? (1) MPS
?Before 1978
?Established by Soviet
?Based on Marx’ labor axiology
?Exclude the third industry,include
intermediate products
24
?(2) SNA
? After 1978
? Spread through most countries
? Based on western economics
? Include final products and services
2.4 MPS vs,SNA
2.5 Saving and Wealth,
Stock and Flow
?saving and wealth
?definition
?comparison
?relations
?Stock and Flow
2.5 Saving and Wealth,
Stock and Flow
?Stock and Flow
?Saving（ flow） equals
deference of wealth （ stock）
1??? tt WWS
2.5 Saving and Wealth,
Stock and Flow
?Stock and Flow
?Capital（ stock） of year t equals capital
（ stock） of year t-1 adding investment (flow)
of year t,deduct depreciation of year t,
2.5 Saving and Wealth,
Stock and Flow
Pttt DIKK ??? ? 1
2.6 Price Index and
Inflation Rate
? Nominal and Real GDP
how to measure GDP?
? definition,Gross Domestic Product (GDP)
is the market value of all final goods and
services produced within an economy in a given
period of time,
? Market value
?Nominal and Real GDP
? nominal GDP
? current price
? real GDP
? fixed price
2.6 Price Index and
Inflation Rate
? formation of price index
? Variable-Weight Price Index
? Fixed-Weight Price Index
2.6 Price Index and
Inflation Rate
? formation of price index
? Variable-Weight Price Index
算的价值当期产出按基期价格计
算的价值当期产出按当期价格计?V P I
2.6 Price Index and
Inflation Rate
? formation of price index
? Fixed-Weight Price Index
价格计算的价值一揽子固定商品按基年
价格计算的价值一揽子固定商品按当期 ?F P I
2.6 Price Index and
Inflation Rate
? inflation rate
? Inflation is a sustained rise in the general
level of price,a sustained rise in the price
level,
? inflation rate
t
t
t
t
tt
t
P
P
P
PP
1
1
1
1
)(
?
?
?
?
?
?
?
?
?
?
2.6 Price Index and
Inflation Rate
? The GDP deflator in year t,Pt,is defined as the
ratio of nominal GDP in year t,
2.6 Price Index and
Inflation Rate
tt
t
tt
nominalGDP $Yp = =
r e a l G D P Y
?The GDP deflator gives the average price of
the goods include in GDP---the final goods
produced in the economy,
? CPI,to measure the average price of
consumption,or equivalently,the cost of
living,macroeconomists look at another index,
the consumer price index( CPI),the CPI gives
the cost in dollar of a specific list of goods and
services over time,
2.6 Price Index and
Inflation Rate
0 0 0
1 1 2 2
0 0 0 0 0 0
1 1 2 2
t t t
mm
mm
p q p q p qC P I
p q p q p q
? ? ??? ??
? ? ??? ?
Case5,CPI &GDP,1948-2000 of U.S.A
? nominal interest rate and real interest rate
?nominal interest rate measures the yield of
financial asset by nominal price
? Real interest rate measures the yield of financial
asset by real price
??? ir
2.7 Nominal Interest Rate
and Real Interest Rate
2.8 Employment,Unemployment,
& Wage Level
? Production function
),( NKAFY ?
? Population over 16
? Labor force
? Not in labor force
? Students
? Housewife
? Retired
? Sick
? Other
? Employment
? Unemployment
2.8 Employment,Unemployment,
& Wage Level
2.8 Employment,Unemployment,
& Wage Level
?The unemployment rate is defined as the
ratio the number of unemployed to the
labor force,u=U/L
?The labor force is defined as the sum of
those employ and these unemployed,
L = N + U
labor force = employed + unemployed
Case6,Labor Force Status of the
U.S.,2000
Labor Force Status of the U.S.,2000
? labor force
=135.2+5.7=140.9
? unemployment rate
=(5.7/140.9)100%=4.0%
? Participation rate
=(140.9/209.7)100%=67.2%
Case7:Labor Force Status of the U.S,Adult
Population,1994
?Categories of unemployment
?Frictional unemployment
?Seasonal unemployment
?Cyclic(al) unemployment
?Short demand unemployment
?technological unemployment
?structural unemployment
?Voluntary (involuntary) unemployment
2.8 Employment,Unemployment,
& Wage Level
? full-employment
? natural unemployment rate
2.8 Employment,Unemployment,
& Wage Level
N
S
D
In equilibrium labor
market,employment rate
decided by level of wage
W*/P
N*
W/P
2.8 Employment,Unemployment,
& Wage Level
?Okun’s Law
?Arthur M,Okun
?Okun’s Law,In most countries,there is a
clear relation between the change in
unemployment and GDP growth,This
relation is known as Okun’s Law,
2.8 Employment,Unemployment,
& Wage Level
Case 8:Okun’s Law
source,Mankiw, macroeconomics,（ the 5th edition）, P.36
50
Chapter 2
The End
0
10
20
30
40
90 91 92 93 94 95 96 97 98 99 00
Chapter 2
The Major
Macroeconomic
Variables
0
10
20
30
40
90 91 92 93 94 95 96 97 98 99 00
Outlines (1)
? 2.1 GDP & GNP
? 2.2 three approaches to
measure GDP
? 2.3 NI & PI & DPI
? 2.4 MPS vs SNA
? 2.5 saving and wealth,
stock and flow
? 2.6 price index and Inflation Rate
? 2.7 nominal interest rate
and real interest rate
? 2.8 employment,unemployment,
& wage level
Outlines (2)
? definition
?GDP
?GNP
? comparison
?GDP, domestic principle
?GNP, national principle
2.1 GDP & GNP
? relation
? definition of NFP
N F PG N PG D P ??
2.1 GDP & GNP
?Nominal and Real GDP
?Nominal GDP is the sum of the quantities
of final goods produced times their
current price,
?Real GDP is the sum of the quantities of
final goods produced times constant
(rather than current) price,
2.1 GDP & GNP
7
?final goods and services vs,
intermediate products
?Products vs,commodities
?Market vs,non-market
2.1 GDP & GNP
case1,
make wine
Price of
final goods
Price of
intermediate
products
Increment
Wheat 100 0 100
flour 150 100 50
Bread 250 150 100
retail 300 250 50
total 800 500 300
Case2,from wheat to bread
?limitation of GDP (GNP）
?non-market activities
?diversity in standard of living
?Income distribution
?Natural resource & environment
2.1 GDP & GNP
2.2 Three Approaches to
Measure GDP
? Product approach
?Definition,GDP is the value of the Final
Goods and Services Produced in the Economy
During a Given Period,
12
? Product approach
?Note,
?Market value
?New product and service
?Final product and service
2.2 Three Approaches to
Measure GDP
? Product approach
GDP is the Sum of Value Added in the
Economy During a Given Period,
2.2 Three Approaches to
Measure GDP
? expenditure approach
?Four categories of expenditure
? consumption （ C）
? investment （ I ）
? government purchase （ G）
? net export（ NX）
2.2 Three Approaches to
Measure GDP
? expenditure approach
NXGICG D P ????
2.2 Three Approaches to
Measure GDP
Case3,
Case4,GDP and components 1997 of china
components Total（ billions of Yuan） Percentage （ %）
consumption 36117.8 47.48
Investment 27867.3 36.63
Government
purchase 9347.1 12.28
Net exports 2745.0 3.61
GDP 76077.2 100
source：,China statistics,1998,
?income approach
GDP is the Sum of incomes in the Economy
During a Given Period,
2.2 Three Approaches to
Measure GDP
?income approach
?Five categories of expenditure （ NI）
?Labor income
?Capital income
?Rate earnings
?Company profit
?Net interest
2.2 Three Approaches to
Measure GDP
?income approach
?The other three items
? Indirect taxes
? depreciation
? NFP
2.2 Three Approaches to
Measure GDP
2.3 NI,PI and DPI
?Basic terms
?GDP,gross domestic product
?GNP,gross national product
?NNP,net national product
?NI,national income
?PI,personal income
?NFP,net foreign product
GNP
depreciation
NNP
Indirect
taxes
NI
PI=NI
-Co,Profit
-social
insurance
+transfer
payment
+net
interest
+bonus
income
tax& non-
tax
payment
DPI
2.3 NI,PI and DPI
2.4 MPS vs,SNA
? (1) MPS
?Before 1978
?Established by Soviet
?Based on Marx’ labor axiology
?Exclude the third industry,include
intermediate products
24
?(2) SNA
? After 1978
? Spread through most countries
? Based on western economics
? Include final products and services
2.4 MPS vs,SNA
2.5 Saving and Wealth,
Stock and Flow
?saving and wealth
?definition
?comparison
?relations
?Stock and Flow
2.5 Saving and Wealth,
Stock and Flow
?Stock and Flow
?Saving（ flow） equals
deference of wealth （ stock）
1??? tt WWS
2.5 Saving and Wealth,
Stock and Flow
?Stock and Flow
?Capital（ stock） of year t equals capital
（ stock） of year t-1 adding investment (flow)
of year t,deduct depreciation of year t,
2.5 Saving and Wealth,
Stock and Flow
Pttt DIKK ??? ? 1
2.6 Price Index and
Inflation Rate
? Nominal and Real GDP
how to measure GDP?
? definition,Gross Domestic Product (GDP)
is the market value of all final goods and
services produced within an economy in a given
period of time,
? Market value
?Nominal and Real GDP
? nominal GDP
? current price
? real GDP
? fixed price
2.6 Price Index and
Inflation Rate
? formation of price index
? Variable-Weight Price Index
? Fixed-Weight Price Index
2.6 Price Index and
Inflation Rate
? formation of price index
? Variable-Weight Price Index
算的价值当期产出按基期价格计
算的价值当期产出按当期价格计?V P I
2.6 Price Index and
Inflation Rate
? formation of price index
? Fixed-Weight Price Index
价格计算的价值一揽子固定商品按基年
价格计算的价值一揽子固定商品按当期 ?F P I
2.6 Price Index and
Inflation Rate
? inflation rate
? Inflation is a sustained rise in the general
level of price,a sustained rise in the price
level,
? inflation rate
t
t
t
t
tt
t
P
P
P
PP
1
1
1
1
)(
?
?
?
?
?
?
?
?
?
?
2.6 Price Index and
Inflation Rate
? The GDP deflator in year t,Pt,is defined as the
ratio of nominal GDP in year t,
2.6 Price Index and
Inflation Rate
tt
t
tt
nominalGDP $Yp = =
r e a l G D P Y
?The GDP deflator gives the average price of
the goods include in GDP---the final goods
produced in the economy,
? CPI,to measure the average price of
consumption,or equivalently,the cost of
living,macroeconomists look at another index,
the consumer price index( CPI),the CPI gives
the cost in dollar of a specific list of goods and
services over time,
2.6 Price Index and
Inflation Rate
0 0 0
1 1 2 2
0 0 0 0 0 0
1 1 2 2
t t t
mm
mm
p q p q p qC P I
p q p q p q
? ? ??? ??
? ? ??? ?
Case5,CPI &GDP,1948-2000 of U.S.A
? nominal interest rate and real interest rate
?nominal interest rate measures the yield of
financial asset by nominal price
? Real interest rate measures the yield of financial
asset by real price
??? ir
2.7 Nominal Interest Rate
and Real Interest Rate
2.8 Employment,Unemployment,
& Wage Level
? Production function
),( NKAFY ?
? Population over 16
? Labor force
? Not in labor force
? Students
? Housewife
? Retired
? Sick
? Other
? Employment
? Unemployment
2.8 Employment,Unemployment,
& Wage Level
2.8 Employment,Unemployment,
& Wage Level
?The unemployment rate is defined as the
ratio the number of unemployed to the
labor force,u=U/L
?The labor force is defined as the sum of
those employ and these unemployed,
L = N + U
labor force = employed + unemployed
Case6,Labor Force Status of the
U.S.,2000
Labor Force Status of the U.S.,2000
? labor force
=135.2+5.7=140.9
? unemployment rate
=(5.7/140.9)100%=4.0%
? Participation rate
=(140.9/209.7)100%=67.2%
Case7:Labor Force Status of the U.S,Adult
Population,1994
?Categories of unemployment
?Frictional unemployment
?Seasonal unemployment
?Cyclic(al) unemployment
?Short demand unemployment
?technological unemployment
?structural unemployment
?Voluntary (involuntary) unemployment
2.8 Employment,Unemployment,
& Wage Level
? full-employment
? natural unemployment rate
2.8 Employment,Unemployment,
& Wage Level
N
S
D
In equilibrium labor
market,employment rate
decided by level of wage
W*/P
N*
W/P
2.8 Employment,Unemployment,
& Wage Level
?Okun’s Law
?Arthur M,Okun
?Okun’s Law,In most countries,there is a
clear relation between the change in
unemployment and GDP growth,This
relation is known as Okun’s Law,
2.8 Employment,Unemployment,
& Wage Level
Case 8:Okun’s Law
source,Mankiw, macroeconomics,（ the 5th edition）, P.36
50
Chapter 2
The End
0
10
20
30
40
90 91 92 93 94 95 96 97 98 99 00
