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Lecture3,4 Hul213 Macro

This document discusses measuring macroeconomic indicators like GDP. It explains what GDP is, how it is calculated using expenditure and income approaches, and what is included and excluded from GDP calculations. The document also discusses using GDP to examine standards of living and compares GDP between countries.

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48 views30 pages

Lecture3,4 Hul213 Macro

This document discusses measuring macroeconomic indicators like GDP. It explains what GDP is, how it is calculated using expenditure and income approaches, and what is included and excluded from GDP calculations. The document also discusses using GDP to examine standards of living and compares GDP between countries.

Uploaded by

namankale2406
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Macroeconomics (HUL213)

Lectures 03-04
Jan 08, 11; 2024
Measuring the Macroeconomy

In this lecture, we will learn


▶ The importance of gross domestic product (GDP).
▶ The composition of GDP, and how it has changed over time.
▶ How to use GDP to examine the evolution of living standards.
▶ Documenting the differences in living standards across
countries.
Introduction

National income accounting


▶ Method of aggregating the production of diverse goods into a
single measure of overall economic activity
National accounting:
▶ State of an economy at a given time
▶ Changes to an economy over time
▶ Differences across countries
Measuring the State of the Economy
Gross domestic product (GDP): The market value of the final
goods and services produced in an economy over a certain period
Measuring the State of the Economy
The Expenditure Approach to GDP
An example: income approach to GDP (2018, US)
The labour share to GDP in India
The labour share (in % to GDP) 1980-2022:
Developed+Developing world

Source: United Nations global policy model database: Labour share is calculated as the ratio of the sum of

compensation of employees and mixed income to GDP.


Total share of GDP to Inputs
▶ Share of GDP to Labour
▶ Two-thirds (approximately)
▶ Labour’s share of GDP has remained approximately constant
over time
▶ Share of GDP to capital
▶ One-third (approximately)
What Is Included in GDP and What Is Not?
GDP considers only final goods and services.
▶ Intermediate goods are not included in GDP calculations.
▶ For example, if Alcoa sells aluminum to Ford to make a Focus
ST, the sale of the car is included in GDP, but not the sale of
the aluminum.
Not included:
Included: ▶ Government transfer
payments
▶ Government spending on goods/services ▶
Environmental conditions
▶ Factory production ▶ A measure of a nation’s
▶ Healthcare expenditures health
▶ Ingredients and food purchased ▶ Time spent cooking at
▶ Kids in day care home
▶ Babysitter
Measures of Well-Being

▶ GDP is used by economists as a proxy for standards of living.


▶ https:
//www.gapminder.org/tools/#$chart-type=bubbles&url=v1
An example comparison
How large is China’s economy in comparison with the U.S.
economy? The national accounts for the two countries show that
in 2014: {U.S. GDP: $16.4 trillion.} {China’s GDP: 60.9 trillion
yuan}
▶ Both are measured in 2005 prices.
▶ The exchange rate: 6.14 yuan per dollar
▶ We need to use a common set of prices to calculate real GDP
in each country. adjust for the relative price level of goods in
the United States versus China.
▶ The value of Chinese GDP in U.S. dollars is:
60.9 trillion yuan x ($1/6.14 yuan) = $9.9 trillion
▶ In China, on average, goods cost about 59 percent of goods in
the United States. Hence, (US price level) / (China price
level) is roughly equal to 1/0.59.
▶ Therefore, size of China’s economy = $9.9 trillion × (1/0.59)
= $16.8 trillion
Measurement comparison

▶ Real GDP in China is about $16.8 trillion.


▶ At common prices, the Chinese economy is much larger than
it first appeared.
▶ China’s economy is about 2 percent larger than the U.S.
economy.
▶ Compare this to how it originally appeared to be 40 percent
smaller.
▶ Indeed, as of 2014, China had the largest economy in the
world measured at constant prices.
▶ However, this does not take into account the fact that China
has about four times as many people as the United States.
Thank You

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