lec02_measurement.pdf - ECON 3040 Intermediate...

This preview shows page 1 - 12 out of 50 pages.

Prof. Mathieu Taschereau-DumouchelECON 3040 Intermediate Macroeconomic TheoryLecture 2: Measuring the economy
Measures of Economic ActivityStandard measures of economic performance :GDP, GNP, Productivity, Inflation, Unemployment rate...Not natural measures but intellectual constructsHighly imperfect, ambiguousSubject to biases, measurement errorBut useful abstractions to think about the economyShows economic forces at workAllows competing theories/models to be tested
Measures of Economic ActivityThere are two basic ways :Measuring the value of productionor incomein a countryGross Domestic Product (GDP) produced by the National Income and Product Accounts (NIPA)Measuring the increase in the national wealth
Gross Domestic Product (GDP)Best measure of national incomeDefinition: Market valueof all finalgoods and services produced within a countryduring a given periodMost complete source of economic information.Market values should reflect society’s preferences so this is also a good approximation to social welfare.GDP per capitaRatio of GDP to populationUsed for cross-country comparisons
National Income and Social Well BeingMeasures of national income and wealth are not perfect measures of social well-beingBut they often correlate well with other measures of social development :Life expectancy and medical careLiteracy ratesCrime and safetyLook at
Human Development Index
What's missing from GDP ?
:
:
Size of Underground Economy (2007)Region %GDP Country % GDP Africa 41.2% US 9.5% Latin America 41.5% Germany 13.2% Asia 26.3% Switzerland 6.7% OECD 16.8% Korea 28.8% Global Average 35.2% China 15.6%
GDP vs GNPGDP: Production within the countryGNP: Production by residents at home or abroadGNP= GDP + Net Factor Payments (NFP)NFP= income paid to domestic factors of production by the rest of the world minus income paid to foreign factors of production.
GDP vs GNPExample:Revenue for a road built by a U.S. company in Saudi Arabia isPart of U.S. GNP (built by a U.S. company), but not U.S. GDPPart of Saudi GDP (built in Saudi Arabia), but not Saudi GNPDifference between GNP and GDP is small for the United States, about 0.2%, but higher for countries that have many citizens working abroad

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture