measures associated with real gdp. real gdp trend: long-term movement in real gdp data. several...
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Measures associated with Real GDP
0
50
100
150
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300
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
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2005
GD
P (
co
ns
tan
t U
S$
, 19
60
=1
00
)
US
ARG
• Real GDP trend:
Long-term movement in Real GDP data. Several techniques.
0
50
100
150
200
250
300
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
GD
P (
co
ns
tan
t U
S$
, 19
60
=1
00
)
US
ARG
• Real GDP growth:
Example:
2005 US Real GDP (constant US$) = 11046 billions
2006 US Real GDP (constant US$) = 11410 billions
100*%
1
1
t
ttt GDP
GDPGDPGDP
%3.3100*
11046
1104611410100*%
2005
200520062006
GDP
GDPGDPGDP
Average growth rates: US:3.2% ARG:2.1%
-15
-10
-5
0
5
10
15
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
GD
P g
row
th r
ate
(c
on
sta
nt
US
$)
US
ARG
• Real GDP growth volatility:
where
In this case x = real GDP growth
Example:
T
ttx xx
T 1
21
9.1growthGDPrealUS
4.6growthGDPrealARG
T
ttxT
x1
1
• Business cycle :
Unemployment
• Basic definitions
Labor force: People 16 years old or older who are employed or looking
for work.
Employed: Any person 16 years old or older (1) who works for pay,
either for someone else or in his or her own business for 1 or more hours per week; (2) who works without pay for 15 or more hours per week in a family enterprise; or (3) who has a job but has been temporarily absent, with or without pay.
Unemployed: A person 16 years old or older who is not working, is available for work, and has made specific efforts to
find work during the previous 4 weeks.
labor force = employed + unemployed
unemployment rate = unemployed
employed + unemployed
population = labor force + not in labor force
labor force participation rate = labor force
population
5.566.08.1139.3147.4223.42004Note: Figures are civilian only (military excluded).Source: Economic Report of the President, 2005, Table B-35.
4.067.15.7136.9142.6212.62000
5.666.57.0118.8125.8189.21990
9.764.010.799.5110.2172.31982
7.163.87.699.3106.9167.71980
4.960.44.178.782.8137.11970
5.559.43.965.869.6117.21960
2.958.91.861.263.0107.11953
UNEMPLOYMENTRATE
LABOR FORCE
PARTICIPATIONRATE
UNEMPLOYED(MILLIONS)
EMPLOYED(MILLIONS)
LABORFORCE
(MILLIONS)
POPULATION16 YEARS
OLD OR OVER(MILLIONS)
(6)(5)(4)(3)(2)(1)
TABLE 7.2 Employed, Unemployed, and the Labor Force, 1953–2004
5.566.08.1139.3147.4223.42004Note: Figures are civilian only (military excluded).Source: Economic Report of the President, 2005, Table B-35.
4.067.15.7136.9142.6212.62000
5.666.57.0118.8125.8189.21990
9.764.010.799.5110.2172.31982
7.163.87.699.3106.9167.71980
4.960.44.178.782.8137.11970
5.559.43.965.869.6117.21960
2.958.91.861.263.0107.11953
UNEMPLOYMENTRATE
LABOR FORCE
PARTICIPATIONRATE
UNEMPLOYED(MILLIONS)
EMPLOYED(MILLIONS)
LABORFORCE
(MILLIONS)
POPULATION16 YEARS
OLD OR OVER(MILLIONS)
(6)(5)(4)(3)(2)(1)
TABLE 7.2 Employed, Unemployed, and the Labor Force, 1953–2004
Unemployment rates across the world
• Types of unemployment:
Frictional unemployment: The portion of unemployment that is due to the
normal working of the labor market; used to denote short-run job/skill matching problems.
Structural unemployment: The portion of unemployment that is due to changes
in the structure of the economy that result in a significant loss of jobs in certain industries.
Cyclical unemployment: The increase in unemployment that occurs during
recessions and depressions.
Inflation
• Price index (PI) (level):
Numerical time series measure designed to help compare how the prices of some class of goods and/or services, taken as a whole, differ between time periods.
Consumer price index (CPI) Based on a bundle that is meant to represent the “market basket” purchased monthly by the typical urban consumer.
Producer price indexes (PPI) Measures of prices that producers receive for products at all stages in the production process.
• Inflation ( ) (change):
An increase in the overall price level. Deflation refers to a decrease in the overall price level.
100*
1
1
t
ttt PI
PIPI
US alone
0
2
4
6
8
10
12
14
16
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
Infl
ati
on
(b
as
ed
on
CP
I)
US
US and Argentina together
Accumulated inflation: US:580% ARG: 248,370,890,124,673 %
-50
50
150
250
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450
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650
750
850
950
1961
1963
1965
1967
1969
1971
1973
1975
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1981
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1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
Infl
ati
on
(b
as
ed
on
CP
I)
US
inflation reached more than 3000% in 1989!
ARG
• Costs of inflation
1) It reduces the overall standard of living by making goods and services more expensive (false statement) People’s income from wages and salaries, profits, interest, and rent increases during inflations.
2) Changes the distribution of income If your income is fixed and prices rise, your ability to purchase goods and services falls proportionately. Indexation.
3) Effects on debtors and creditors If the actual inflation is higher (lower) than the expected inflation debtors (creditors) benefit.
4) Administrative Costs and Inefficiencies Alternative use of time. Intense use of banks. Relative prices uncertainty.
5) Increased risk, reduced investment and slower economic growth