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MACROECONOMICS-CH2
- 4. Why expenditure = income In every transaction, the buyer’s expenditure becomes the seller’s income. Thus, the sum of all expenditure equals the sum of all income.
- 18. Government spending, 2001
- 26. (GNP – GDP) as a percentage of GDP for selected countries, 1997.
- 27. (GNP – GDP) as a percentage of GDP for selected countries, 1997.
- 32. U.S. Real & Nominal GDP, 1967-2001
- 35. Answers to practice problem, part 2 52,000 50,000 $46,200 Real GDP 112.1 102.8 100.0 GDP deflator 9.1% 58,300 2003 2.8% 51,400 2002 n.a. $46,200 2001 inflation rate Nom. GDP
- 36. Understanding the GDP deflator Example with 3 goods For good i = 1, 2, 3 P it = the market price of good i in month t Q it = the quantity of good i produced in month t NGDP t = Nominal GDP in month t RGDP t = Real GDP in month t
- 37. Understanding the GDP deflator The GDP deflator is a weighted average of prices. The weight on each price reflects that good’s relative importance in GDP. Note that the weights change over time.
- 45. The composition of the CPI’s “basket”
- 46. Understanding the CPI Example with 3 goods For good i = 1, 2, 3 C i = the amount of good i in the CPI’s basket P it = the price of good i in month t E t = the cost of the CPI basket in month t E b = cost of the basket in the base period
- 47. Understanding the CPI The CPI is a weighted average of prices. The weight on each price reflects that good’s relative importance in the CPI’s basket. Note that the weights remain fixed over time.
- 52. Two measures of inflation 16 14 12 10 8 6 4 2 0 - 2 Percentage change 1948 1953 1958 1963 1968 1973 Year 1978 1983 1988 1993 1998 CPI GDP deflator
- 59. Okun’s Law 1951 1984 1999 2000 1993 1982 1975 Change in unemployment rate 10 Percentage change in real GDP Okun’s Law states that a one-percent decrease in unemployment is associated with two percentage points of additional growth in real GDP -3 -2 -1 0 1 2 4 3 8 6 4 2 0 -2
Editor's Notes
- Instructor’s Introduction to Chapter 2: This PowerPoint chapter contains in-class exercises requiring students to have calculators. To help motivate the chapter, it may be helpful to remind the students that much of macroeconomics---and this book---is devoted to understanding the behavior of aggregate output, prices, and unemployment. Much of Chapter 2 will be familiar to students who have taken an introductory economics course. Therefore, you might consider going over Chapter 2 fairly quickly. This would allow more class time for the subsequent chapters, which are more challenging. Instructors who wish to shorten the presentation might consider omitting : a couple of slides on GNP vs. GDP a slide on chain-weighted real GDP vs. constant dollar real GDP some of the in-class exercises (though I suggest you ask your students to try these within 8 hours of the lecture, to get reinforcement of the concepts while the material is still fresh in their memory. There are hidden slides you may want to “unhide.” They show that the GDP deflator and CPI are, indeed, weighted averages of prices. If your students are comfortable with algebra, then this material might be helpful. However, it’s a bit technical, and doesn’t appear in the textbook, so I’ve hidden these slides--they won’t appear in the presentation unless you intentionally “unhide” them.