02 Macroeconomic Data - Economics 104B - Lecture Notes -...

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Economics 104B - Lecture Notes - Professor Fazzari Topic II: Macroeconomic Data (Updated February 6, 2007) A. Measuring Aggregate Output 1. Why Measure Output? To test various theories about the economy, we need measures of total production. For example, we need good measures to determine what happens to the economy when interest rates fall. We also might want to compare economic performance across countries. For these "positive" reasons we need good measures of overall economic performance. Good data are also essential as a guide to policy. For the Fed, the Congress, and the President to know what kinds of policies to pursue, they need good information about the state of the economy. Thus, there are "normative" reasons for measuring output. Macroeconomic measures also have important political ramifications. Most voters may know little about GDP, but news of its weak or strong growth will matter for the outcome of national elections. Example: George H.W. ("Daddy") Bush lost the election of 1992 to Bill Clinton. There were undoubtedly many reasons for this outcome, but perhaps none was more significant than the weak news about the economy during 1992, particularly slow GDP growth. These numbers matter! While these points are made specifically about GDP, they also apply to measures of inflation and unemployment discussed in the lecture notes below. Indeed, in recent years, unemployment may be more important for political purposes than GDP because it is more tangible to the average voter. **Important Note** The material on the measurement of inflation and unemployment will not be covered in class, but you need to learn about these things for the first exam. The lecture notes for topics B. and C. in this file below provide the material that you need for these topics. Please study these notes carefully on your own. 2. Adding Up Diverse Products If the economy produced just one kind of physical good (corn, for example), it would be easy to measure total output. But it is difficult to calculate GDP because you have to find a way to measure and compare thousands (millions?) of very diverse products. Much of "production" is not in the form of physical "goods" that can be counted. Services currently account for 70% of U.S. GDP (examples: education, visits to the doctor). Somehow, all the diverse goods and services produced must be aggregated to come up with a measure of total national output.
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3. GDP Definition Gross Domestic Product (GDP): the money value of all final goods and services produced in an economy over a given time period. GDP is typically measured for a country for a period of a quarter or a year. a) Logic of Using Money Values as Weights for Aggregation To meet the challenge of the vast diversity of products, economists use the money value of goods and services to determine their individual values. The money values are then added up to get a measure of aggregate output. Relative money values reflect the different values people put on different goods.
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This note was uploaded on 02/21/2012 for the course ECONOMICS 104 taught by Professor Crocker during the Spring '08 term at UMass (Amherst).

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02 Macroeconomic Data - Economics 104B - Lecture Notes -...

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