ch1Introduction(中级宏观经济学,香港中文大学)

1、Chapter 1Introduction1What is Macroeconomics ? Macroeconomics focuses on the aggregate behavior of consumers and firmsthe behavior of governmentthe overall level of economic activity in individual countriesthe economic interactions among nationsthe effects of fiscal and monetary policies2Macroeconom

2、ics differs from microeconomics in that it deals with the overall effects on economics of the choices that all economic agents make, rather than on the choices of individual consumers or firms.Long-run growth refers to the increase in a nations productive capacity and average standard of living over

3、 a long period of time.Business cycles refer to the short-run ups and downs in aggregate economic activity.3Gross National Product, Economic Growth and Business CyclesThe most basic set of facts in macroeconomics has to do with the behavior of aggregate economic activity over time. One measure of ag

4、gregate economic activity is gross national product (GNP).The series of real GNP per capita for the U.S. over the period 1900-2002 is shown in the figure. 4Two Useful Transformation of Data1) Taking natural logarithm of time series.The slope of the graph of the natural logarithm of a time series yt

5、is a good approximation to the growth rate of yt when the growth rate is small.Since if yt yt-1, we have 52) Detrending the process of decomposing the series into 2 components: the growth (or trend) component, and the business cycle component.The trend in the log of real per capita GNP is shown as a

6、 colored line, while the log of actual real per capita GNP is the black one.The lower graph shows only the percentage deviations from trend in real per capita GNP.6Macroeconomic ModelsPurpose: To capture the essential features of the world needed for analyzing a particular economic problem. To be us

7、eful then, a model must be simple. Basic structure of a macroeconomic model:The consumers and firms in the economy, who are assumed to optimizeThe sets of goods that consumers wish to consumeConsumers preferences over goodsThe technology available to firms for producing goodsThe resources availableC

8、ompetitive Equilibrium: all agents (consumers and firms) act as price-takers, and prices clear markets.7Microeconomic PrinciplesMacroeconomic behavior is the aggregation of microeconomic decisions made by all the consumers and firms in the economy. Very often, we are interested in the macroeconomic

9、effects of a policy change. In particular, we want to make predictions on those effects that are consistent with individual decisions. To achieve this, we must work our way up from decision making at the micro-level, then aggregating these decisions to arrive at the macroeconomic effects of the poli

10、cy change. 8Disagreement in Macroeconomics There is little disagreement in macroeconomics concerning the general approaches to modeling growth.There is much controversy concerning business cycle theory and the role of the government policy in smoothing out cycles:Keynesian Sticky-Price Theory (Keyne

11、s, Hicks & Samuelson)Money Surprise Theory (Friedman & Lucas)Real Business Cycle Theory (Prescott & Kydland)Keynesian Coordination Failure Theory (Diamond, Cooper & John)9Chapter 2Measurement 10Measuring Gross Domestic Product (GDP)National Income Accounting is a process of measuring the total quant

12、ity of goods and services produced for the market in a given country over a given period of time.Gross Domestic Product (GDP) is the dollar value of final output produced during a given period of time within a country.There are 3 distinct approaches to measure GDP:Product ApproachExpenditure Approac

13、hIncome Approach11Product approach: GDP is the sum of value added to goods and services in production across all productive units in the economy. Remarks: the value of intermediate goods used in production must be subtracted from the value of all goods produced in the economy, if not there would be

14、double-counting.12Expenditure approach: GDP is the total spending on all final goods and services production in the economyTotal expenditure = C + I + G + NXIncome approach: GDP can be computed by adding up all incomes received by economic agents contributing to production. Incomes include:compensat

15、ion of employees, proprietors income, rental income, corporate profits, net interest, indirect business taxes and depreciation.13A common measure of aggregate output is GNP. Gross National Product (GNP) measures the value of output produced by domestic factors of production, whether or not the produ

16、ction takes place inside the countrys borders.GNP = GDP + Net factor payments from abroad to domestic residents 14Numerical Example 1Consider an economy consisting of a coconut producer, a restaurant, consumers and a government. Coconut is both an intermediate good in the restaurant and a final cons

17、umption good.Current year production of coconuts = 10 millionUnit Price of coconut = $ 2.00 After-tax profits = $ 13 million.15Quantity of coconuts used by the restaurant as intermediate good = 6 millionOther data for the restaurant:After-tax profit = $ 11 million.16Suppose that the government uses

18、all the tax revenue to provide national defense.Also, for the consumers, we have17Methods of Computing GDP: The Product Approach18Methods of Computing GDP: The Expenditure Approach19Methods of Computing GDP: The Income Approach20Limitations of Using GDP1) GDP is inaccurate in measuring aggregate eco

19、nomic welfare because It does not take into account how income is distributed within the population. It leaves out all nonmarket activity, such as home production.2) GDP is also inadequate in measuring aggregate output becauseUnderground economic activities are not counted in GDP, for example drug d

20、ealings, baby-sitting etc.It is difficult to estimate the exact value of government production. 21Nominal and Real GDP and Price IndicesVery often, we would like to compare the GDP data in different time periods. Since the average level of prices changes over time, an additional step is needed to di

21、sentangle a nominal change in GDP from a real change in GDP.A nominal change in GDP is a change in GDP that occurred only because the price level changed. A real change in GDP is an increase in the physical quantity of output.22Numerical Example 2Consider an economy in which there are only 2 goods:

22、apples and oranges.Nominal GDP in Year 1 = $1*50 + $0.8*100 = $130.Nominal GDP in Year 2 = $1.25*80 + $1.6*120 = $292. 23% change in nominal GDP =If we use Year 1 as base year, i.e. to compute real GDP using Year 1 prices, then Real GDP in Year 1 = Nominal GDP in Year 1, Real GDP in Year 2 = $1*80 +

23、 $ 0.8*120 = $ 176, and % change in real GDP is 35.4%. If we repeat the above computations but using Year 2 as base year, then the % change in real GDP is 31.2%.Problem: If the relative price of apples to oranges changes over time, then the choice of base year matters for the calculation of GDP (as

24、shown in the above example).24Solution: A chain-weighting scheme for calculating real GDP.Step 1: Compute the ratios of real GDP in year 2 to real GDP in year 1 using different base years:Year 1 as base year: g1 =176/130 = 1.354,Year 2 as base year: g2 =292/222.5 = 1.312.Step 2: Calculate the chain-

25、weighted ratio of real GDP: g = (g1 * g2 )1/2 = (1.354 * 1.312 )1/2 = 1.333. Step 3: Calculate the % change in real GDP: % change in real GDP is 33.3%.Step 4: Calculate real GDPs:Year 1 Base: 130 and 173.29 (130*1.333),Year 2 Base: 219.05 (292/1.333 ) and 292.25Measures of Price LevelA price index i

26、s a weighted average of the prices of a set of the goods and services produced in the economy over a period of time. Two common measures of the price level:Implicit GDP price deflator26Consumer Price Index (CPI) It is a fixed-weight price index, which takes the quantities in some base year as being

27、the typical goods bought by the average consumer during that base year, and then uses those quantities (same basket) as weights to calculate the index in each year.27Problems with Measuring Real GDP and Price Level In computing the CPI, we implicitly assume that consumers buying habits are unaffecte

28、d by a relative price change. This may not be realistic because consumers typically will purchase less of the goods that have become more expensive (substitution effects). As a result, these goods receive a higher weight than they should in the CPI, and thus the CPI-based measure of the rate of infl

29、ation will be biased upward.In measuring real GDP, changes in the quality of goods over time is not taken into account. As a result, inflation and growth in real GDP will be biased. A third problem is how measured GDP takes account of new goods, e.g. the appearance of personal computers.28Saving, We

30、alth and CapitalSaving is a flow, i.e. a rate per unit time, while wealth is a stock, i.e. the quantity in existence at a point in time.Let Yd denote private disposable income. Y is GDP, NFP is net factor payments from abroad to domestic residents, TR is transfer from the government to the private s

31、ector, INT is interest on the government debt, and T is taxes.29Private sector saving, Sp, is given by Yd-C. Government saving Sg is given by government surplus (deficit).The sum of Sp and Sg is called national saving, denoted by S, The quantity NX + NFP is the current account surplus (CA) with the

32、rest of the world. This is a measure of the balance of trade in goods with all other countries. If S I, then CA 0, i.e. the excess domestic savings must be shipped outside the country in the form of goods and services.30Labor Market MeasurementThe following classification is adopted by the U.S. Bure

33、au of Labor Statistics, employed: those who worked part-time or full-time during the past week,unemployed: those who were not employed during the past week, but actively searched for work at some time during the last four weeks, andnot in the labor force: those who are neither employed or unemployed

34、.Labor Force = no. of the employed + no. of the unemployed.31Two key statistics:Unemployment rate may not be an ideal measure of labor market tightness becausediscouraged workers, namely those who have stopped searching for work but actually wish to be employed, are not counted in the labor force,th

35、e unemployment rate does not adjust for how intensively the unemployed are searching for work.32Chapter 3Business Cycle Measurement33Regularities in GDP FluctuationsBusiness Cycles : fluctuations about trend in real GDP.Peak (Trough): a relatively large positive (negative) deviation from trend.Peaks

36、 and troughs are referred to as turning points.34Regularities in GDP FluctuationsAmplitude: the maximum deviation from trend.Frequency: the number of peaks in real GDP that occur per year.35Observations from the U.S. DataConsider the percentage deviations from trend in real GDP over the period 1947-

37、2003.3 main observations:PersistencyIrregularitiesComovement36Observations from the U.S. DataPersistency: the deviations from trend are persistent in the sense that when real GDP is above (below) trend, it tends to stay above (below) trend. This is important for making economic forecast over the sho

38、rt run.37Observations from the U.S. DataIrregularities:irregularities in the amplitude and frequency of fluctuations in real GDP about trend.These imply that forecasting is difficult for longer term.38Observations from the U.S. DataMacroeconomic variables usually fluctuate together in patterns that

39、exhibit strong regularities: Comovement3 ways of describing comovement relative to real GDP:Procyclical, countercyclical, acyclical Leading, lagging, coincidentVariability relative to GDP39Procyclical variable : if its deviations from trend are positively correlated with the deviations from trend in real GDP.Examples: real consumption, real in