jeffrey timmermans global economic journalism week 2: economies & indicators - i
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Jeffrey Timmermans
Global Economic JournalismWeek 2: Economies & Indicators - I
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Economic goals of governments
✤ Full employment
✤ or at least as full as possible...
✤ Steady annual growth in output
✤ without overheating
✤ Stable prices (low but steady rise in inflation)
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Measuring economic performance✤ Output of goods & services
✤ Changes in prices for goods & services over time
✤ Mood of consumers
✤ Employment
✤ Total supply of money
✤ Trade with other countries
✤ Productivity of workers
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Major economic indicators
✤ Gross Domestic Product (GDP)
✤ measures output, not wealth nor well-being
✤ Consumer Price Index
✤ measures how prices change (e.g. inflation)
✤ Unemployment
✤ Money Supply
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What is a recession?
1.Two consecutive quarters of declines in GDP (contraction)
2.Whatever the U.S. National Bureau of Economic Research (NBER) says it is!
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U.S. Economic Growth (1940-2010)
Source: St. Louis Federal Reserve Bank
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The Business Cycle
Real output
Time
Trend line
Recession
Recession
Recession
Rec
over
y
Rec
over
yTrough
Peak
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The Regulatory Cycle
Crisis in un- or under-regulated
area
Politicians respond to people’s anger
Lobbyists/companies seek
deregulation
Politicians respond to companies
Regulation, followed by quiet period
Deregulation
Recession
Growth
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Making sense of indicators
✤ A comparison figure (previous year, quarter or month) gives necessary context
✤ Watch market reaction to indicators
✤ Compare the actual result to expectations
✤ Market prices are news!
✤ Talk to “real people” to give life to the data
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Questions to ask about data
✤ Who is publishing the data, and who compiled it?
✤ What do the data cover, and what is left out?
✤ How reliable are the data?
✤ What is the time period for the data?
✤ Will the data be revised later?
✤ Are the data seasonally adjusted? Adjusted for inflation? Annualized?
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More questions
✤ Is the data published as an index, or an absolute amount?
✤ If an absolute amount, what units?
✤ What will you use for comparison? Year-earlier period?
✤ Is the indicator lagging, coincident, or leading?
✤ How should you describe the significance of the measure to your reader?
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Adjustments
✤ Inflation adjusted
✤ Real: effects of inflation are removed
✤ Nominal: no adjustment for inflation
✤ Annualized: “what if” same trend continued for a whole year
✤ Seasonally adjusted
✤ Data “smoothed” using long-term seasonal trends
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GDP vs. GNP
✤ Gross Domestic Product
✤ Total value of the output of final goods & services produced within a country’s borders
✤ Gross National Product
✤ Total value of output produced by a country’s citizens, no matter where in the world they are
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Methods of calculating GDP
✤ Value added
✤ Adding the value added at each stage of production
✤ Income
✤ Adding the total income paid (wages, royalties)
✤ Expenditure
✤ Adding up the country’s spending on final goods & services, i.e. goods that aren’t inputs for another good
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Circular Flow Model
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Components of GDP
Gross Domestic Product = Consumption + Investment +
Government spending + (exports - imports)
GDP = C + I + G + (E - I)
or
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Factors that impact GDP
✤ Exchange rates
✤ Purchasing-power parity
✤ Interest rates
✤ Inflation (real GDP vs. nominal GDP)
✤ Capital depreciation
✤ Gross domestic product, not net
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Ways of using GDP
✤ Cross-border comparisons
✤ Either by value or by % change
✤ Productivity
✤ GDP per hours worked
✤ Prosperity
✤ GDP per person
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Problems with GDP
✤ Doesn’t measure externalities (positive or negative)
✤ Pollution, education
✤ Doesn’t include a measure of overall quality of life, happiness nor well-being
✤ Doesn’t measure income disparity/distribution