20100830+notes+NIPA - Lecture 1a 1a. Measuring the...

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Unformatted text preview: Lecture 1a 1a. Measuring the Macroeconomy The National Income and Product Accounts T HE F LOW OF P RODUCTION AND S ALES Production The U.S. Department of Commerce's Bureau of Economic Analysis has estimated that in the third quarter of 2007that is, adding up the months of July, August, and Septemberthe United States economy produced goods and services at a rate of $14,179.9 billion worth a year. That doesn't mean that in July, August, and September we produced $14 trillion plus worth of stuff: we only produced a quarter of that: $3,545.0 billion. What the Bureau of Economic Analysis said was that, if we were to maintain that quarter of the year's pace of production for an entire year, then in that year we would have made $14 trillion plus. Confused? Dont blame yourself. It is confusing. The BEAs estimates of the current-dollar value of productionits estimates of nominal Gross Domestic Productare a Fow, not a stock. They are measured in terms of how many dollars worth of stuff are made in a given unit of time. It is like an automobile's speed: if you drive 60 miles an hour for fteen minutesa quarter of an houryou don't go 60 miles but instead 15. If you produce $3,545.0 billion worth of stuff in three months you are making things and providing services at a rate of $14,179.9 billion per year. Sales Not all but almost all of the value of the stuff made in the fourth quarter of 2007 was sold. Nominal gross nal sales of domestic product in that quarter proceeded at a rate of $14,148.8 billion per year. The difference between $14,179.9 and $14,148.8$31.0 billionis inventory accumulation: the difference between production and sales piles up as inventories of goods that rms own but that they want to sell. The inventories of goods that had been produced but had not been sold were greater at the end of September than they had been at the start of July. How much greater? If you say $31.0 billion, you are wrong: inventories were growinginventory investment was proceedingin the third quarter at a rate of +$31.0 billion per year . It proceeded at this pace for three months: a quarter of a year. Increasing business inventories at a pace of +31.0 billion per year for a quarter of a year means that at the end of September the Bureau of Economic Analysis's estimate was that inventories were $31.0 billion per year x 1/4 year = $7.8 billion higher than they had been at the start of July. Confused? You should.. The smartest people in the world at this get confusedone example is Princeton Professor and former Federal Reserve Vice Chair Alan Blinder in the White House, back when he was a member of President Clinton's Council of Economic Advisers: he divided rather than multiplying by four in his head and thus got an answer that was off by a factor of 16, and none of the young hotshots sitting in the room felt sure enough to try to correct him on the spot....
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This note was uploaded on 10/04/2011 for the course ECON 1 taught by Professor Martholney during the Fall '08 term at University of California, Berkeley.

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20100830+notes+NIPA - Lecture 1a 1a. Measuring the...

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