2003-6-22 1
Chapter 2:The Major
Macroeconomic Variables
2-1:Aggregate Output
2-2:The Other Major Macroeconomic
Variables
2003-6-22 2
2-1:Aggregate Output
GDP,Value Added,and Income
Nominal and Real GDP
2003-6-22 3
GDP,Value Added,and
Income
There are three ways of thinking about
an economy’s GDP
1.GDP is the value of the Final Goods
and Services Produced in the Economy
During a Given Period.
2003-6-22 4
Steel company
Revenues from sales $100
Expenses(wages) $80
Profit $20
Car company
Revenues from sales $210
Expenses $170
wages $70
Steel purchases $100
Profit $40
2003-6-22 5
GDP,Value Added,and
Income
2.GDP is the Sum of Value Added in the
Economy During a Given Period,
2003-6-22 6
GDP,Value Added,and
Income
3.GDP is the Sum of incomes in the
Economy During a Given Period.
? Some of the revenues are collected by the
government in the form of taxed on sales—
such taxes are called indirect taxes.
? Some of the revenues go to pay workers—
this component is called labor income.
? The rest goes to the firm— that component
is called capital income.
2003-6-22 7
The Composition of U.S,GDP
by Type of Income
(in percent) 1960 1998
Labor income 66% 65%
Capital income 26% 27%
Indirect taxes 8% 8%
2003-6-22 8
Summarize
You can think about aggregate output--about
GDP— in three different but equivalent ways.
? From the output side:GDP is equal to the final
goods and services produced in the economy
during a given period
? Also from the output side:GDP is the sum of value
added in the economy during a given period
? From the income side:GDP is the sum of incomes in
the economy during a given period
2003-6-22 9
Nominal and Real GDP
Nominal GDP is the sum of the quantities of final
goods produced times their current price.
? Nominal GDP is also called dollar GDP or GDP
in current dollars
Real GDP is the sum of the quantities of final goods
produced times constant (rather than current) price.
? Real GDP is also called GDP in terms of
goods,GDP in constant dollars,GDP adjusted
for inflation,or GDP in 1992dollars— if the year
in which real GDP is set equal to nominal GDP is
1992.
2003-6-22 10
2-2:The Other Major
Macroeconomic Variables
The Unemployment Rate
The Inflation Rate
2003-6-22 11
The Unemployment Rate
The define of the unemployment rate
Unemployment and Activity
Social Implications of Unemployment
2003-6-22 12
The define of the
unemployment rate
The unemployment rate is defined as the ratio the
number of unemployed to the labor force,
u = U/L
unemployment rate = unemployed/labor force
The labor force is defined as the sum of those
employ and these unemployed,
L = N + U
labor force = employed + unemployed
2003-6-22 13
?Population over 16 (劳动力资源）
? Labor force （经济活动人口）
? Not in labor force
? Students
? Housewife
? Retired
? Sick
? Other
? Employment （从业人口）
? Unemployment
Labor Force Status
2003-6-22 14
Labor Force Status of the U.S,Adult
Population,1994
2003-6-22 15
Remind
Macroeconomists care about unemployment
for two main reasons:
? The unemployment rate tells them something
about whether an economy is operating above or
below its normal level.
? Unemployment has important social
consequences.
Let us look at each in turn
2003-6-22 16
Unemployment and Activity
In most countries,there is a clear relation between the
change in unemployment and GDP growth,This
relation is known as Okun’s Law.
? Okun’s law shows that high output growth is typically
associated with a decrease in the unemployment rate,and
low output growth is associated with an increase in the
unemployment rate,This makes sense:High output growth
leads to high employment growth,as firms hire more
workers to produce more,High employment growth leads to
a decrease in unemployment.
Figure:The relation unemployment rate
versus GDP growth
奥肯法则的说明,1955 - 1996 年（美国）
根据奥肯法则，产出的增长大约每提高 2% 时，失业率会下降 1 个百分点（各国的情况不完全
相同），此图表明，可以通过 GDP 的增长率准确地预测失业率的变动。
2003-6-22 18
Social Implications of
Unemployment
Macroeconomists also care about
unemployment because of its direct effects
on the welfare of the unemployed.
Unemployment is associated with financial
and psychological suffering.
2003-6-22 19
The Inflation Rate
The define of inflation
The GDP Deflator
The Consumer Price Index
Inflation and Unemployment
Why Do Economists Care About
Inflation?
2003-6-22 20
The define of inflation
Inflation is a sustained rise in the
general level of price,a sustained rise in
the price level.
The inflation rate is the rate at which
the price level increases.
The GDP Deflator
Th e G D P d e flat or in yea r t,P
t
,is def in ed
as th e rati o of no mi nal GD P to re al GD P in
yea r t,
P
t
=
t
t
a lG D P
a lG D Pno
Re
m i n
=
t
t
Y
Y$
· T he GD P def lato r giv es the ave ra ge pr ice of the
goo ds inc lud ed in GD P — the fina l good s pr odu ced in the
eco nom y,
The Consumer Price
Index(CPI)
T o m ea sur e t h e ave ra g e pr ic e of con s um pt i on,or
eq uiva le nt l y,t he co st o f li v i n g,m acr oe co no m is t s l oo k at
an ot h er in de x,th e cons u m er p r i ce i n d e x,(CPI), T h e
CP I give s th e cos t in do llars o f a sp ecific list of go o ds an d
ser vices o ver tim e,
000
2
0
2
0
1
0
1
00
22
0
11
mm
m
t
m
tt
QPQPQP
QPQPQP
C P I
???
???
?
?
?
2003-6-22 23
Inflation and Unemployment
There is a relation between inflation and either
output or unemployment,but it is far from
mechanical— it varies across time and country.
Sometime,there is a negative relation between the
unemployment rate and the change in inflation,
When the unemployment rate is low,inflation tends
to increase,When the unemployment rate is high,
inflation tends to decrease,The negative relation is
called the Phillips relation,and the curve that fits the
set of points best is called Phillips curve,
Chapter 2:The Major
Macroeconomic Variables
2-1:Aggregate Output
2-2:The Other Major Macroeconomic
Variables
2003-6-22 2
2-1:Aggregate Output
GDP,Value Added,and Income
Nominal and Real GDP
2003-6-22 3
GDP,Value Added,and
Income
There are three ways of thinking about
an economy’s GDP
1.GDP is the value of the Final Goods
and Services Produced in the Economy
During a Given Period.
2003-6-22 4
Steel company
Revenues from sales $100
Expenses(wages) $80
Profit $20
Car company
Revenues from sales $210
Expenses $170
wages $70
Steel purchases $100
Profit $40
2003-6-22 5
GDP,Value Added,and
Income
2.GDP is the Sum of Value Added in the
Economy During a Given Period,
2003-6-22 6
GDP,Value Added,and
Income
3.GDP is the Sum of incomes in the
Economy During a Given Period.
? Some of the revenues are collected by the
government in the form of taxed on sales—
such taxes are called indirect taxes.
? Some of the revenues go to pay workers—
this component is called labor income.
? The rest goes to the firm— that component
is called capital income.
2003-6-22 7
The Composition of U.S,GDP
by Type of Income
(in percent) 1960 1998
Labor income 66% 65%
Capital income 26% 27%
Indirect taxes 8% 8%
2003-6-22 8
Summarize
You can think about aggregate output--about
GDP— in three different but equivalent ways.
? From the output side:GDP is equal to the final
goods and services produced in the economy
during a given period
? Also from the output side:GDP is the sum of value
added in the economy during a given period
? From the income side:GDP is the sum of incomes in
the economy during a given period
2003-6-22 9
Nominal and Real GDP
Nominal GDP is the sum of the quantities of final
goods produced times their current price.
? Nominal GDP is also called dollar GDP or GDP
in current dollars
Real GDP is the sum of the quantities of final goods
produced times constant (rather than current) price.
? Real GDP is also called GDP in terms of
goods,GDP in constant dollars,GDP adjusted
for inflation,or GDP in 1992dollars— if the year
in which real GDP is set equal to nominal GDP is
1992.
2003-6-22 10
2-2:The Other Major
Macroeconomic Variables
The Unemployment Rate
The Inflation Rate
2003-6-22 11
The Unemployment Rate
The define of the unemployment rate
Unemployment and Activity
Social Implications of Unemployment
2003-6-22 12
The define of the
unemployment rate
The unemployment rate is defined as the ratio the
number of unemployed to the labor force,
u = U/L
unemployment rate = unemployed/labor force
The labor force is defined as the sum of those
employ and these unemployed,
L = N + U
labor force = employed + unemployed
2003-6-22 13
?Population over 16 (劳动力资源）
? Labor force （经济活动人口）
? Not in labor force
? Students
? Housewife
? Retired
? Sick
? Other
? Employment （从业人口）
? Unemployment
Labor Force Status
2003-6-22 14
Labor Force Status of the U.S,Adult
Population,1994
2003-6-22 15
Remind
Macroeconomists care about unemployment
for two main reasons:
? The unemployment rate tells them something
about whether an economy is operating above or
below its normal level.
? Unemployment has important social
consequences.
Let us look at each in turn
2003-6-22 16
Unemployment and Activity
In most countries,there is a clear relation between the
change in unemployment and GDP growth,This
relation is known as Okun’s Law.
? Okun’s law shows that high output growth is typically
associated with a decrease in the unemployment rate,and
low output growth is associated with an increase in the
unemployment rate,This makes sense:High output growth
leads to high employment growth,as firms hire more
workers to produce more,High employment growth leads to
a decrease in unemployment.
Figure:The relation unemployment rate
versus GDP growth
奥肯法则的说明,1955 - 1996 年（美国）
根据奥肯法则，产出的增长大约每提高 2% 时，失业率会下降 1 个百分点（各国的情况不完全
相同），此图表明，可以通过 GDP 的增长率准确地预测失业率的变动。
2003-6-22 18
Social Implications of
Unemployment
Macroeconomists also care about
unemployment because of its direct effects
on the welfare of the unemployed.
Unemployment is associated with financial
and psychological suffering.
2003-6-22 19
The Inflation Rate
The define of inflation
The GDP Deflator
The Consumer Price Index
Inflation and Unemployment
Why Do Economists Care About
Inflation?
2003-6-22 20
The define of inflation
Inflation is a sustained rise in the
general level of price,a sustained rise in
the price level.
The inflation rate is the rate at which
the price level increases.
The GDP Deflator
Th e G D P d e flat or in yea r t,P
t
,is def in ed
as th e rati o of no mi nal GD P to re al GD P in
yea r t,
P
t
=
t
t
a lG D P
a lG D Pno
Re
m i n
=
t
t
Y
Y$
· T he GD P def lato r giv es the ave ra ge pr ice of the
goo ds inc lud ed in GD P — the fina l good s pr odu ced in the
eco nom y,
The Consumer Price
Index(CPI)
T o m ea sur e t h e ave ra g e pr ic e of con s um pt i on,or
eq uiva le nt l y,t he co st o f li v i n g,m acr oe co no m is t s l oo k at
an ot h er in de x,th e cons u m er p r i ce i n d e x,(CPI), T h e
CP I give s th e cos t in do llars o f a sp ecific list of go o ds an d
ser vices o ver tim e,
000
2
0
2
0
1
0
1
00
22
0
11
mm
m
t
m
tt
QPQPQP
QPQPQP
C P I
???
???
?
?
?
2003-6-22 23
Inflation and Unemployment
There is a relation between inflation and either
output or unemployment,but it is far from
mechanical— it varies across time and country.
Sometime,there is a negative relation between the
unemployment rate and the change in inflation,
When the unemployment rate is low,inflation tends
to increase,When the unemployment rate is high,
inflation tends to decrease,The negative relation is
called the Phillips relation,and the curve that fits the
set of points best is called Phillips curve,
