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Unformatted text preview: Macroeconomics by Yao Li (CONT.)
c. Suppose that 1 dollar is worth 10 pesos. Compute Mexico’s
consumption per capita in dollars. d. Using the purchasing power parity method and U.S. prices,
compute Mexican consumption per capita in dollars. e. Under each method, how much lower is the standard of living
in Mexico than in the U.S.? Does the choice of method make a
difference? 7 Macroeconomics by Yao Li The Construction of PPP Numbers These average prices across countries are called international
dollar prices. Many of the estimates we use in this chapter are
the result of “Penn World Tables.” (Penn stands for the University of Pennsylvania, where the project is taking place.) Led by three
economists—Irving Kravis, Robert Summers, and Alan Heston—
have constructed PPP series not only for consumption (as we
just did in our example) but, more generally, for GDP and its
components, going back to 1950, for most countries in the world. 8 Macroeconomics by Yao Li 10.1 MEASURING THE STANDARD OF LIVING
Let me end this section with three remarks before we move
on and look at growth:
What matters for people’s welfare is their consumption rather than their income.
Thinking about the production side, one may be
interested in differences in productivity rather than in
differences in the standard of living across countries.
The reason we ultimately care about the standard of
living is presumably that we care about happiness. 9 FOCUS: DOES MONEY LEAD TO HAPPINESS?
Figure 1 Life Satisfaction and Income per Person Macroeconomics by Yao Li 10.2 GROWTH IN RICH COUNTRIES SINCE 1950
Table 10-1 The Evolution of Output per Person in Four Rich
Countries since 1950 Table 10-1 yields two main conclusions:
There has been a large increase in output per person.
There has been convergence of output per person
11 Macroeconomics by Yao Li 10.2 GROWTH IN RICH COUNTRIES SINCE 1950
The Large Increase in the Standard of Living since 1950
Real output per capita has increased by a factor of 3.2 since 1950 in the
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This note was uploaded on 03/05/2014 for the course ECON 2123 taught by Professor Yanyu during the Fall '13 term at HKUST.
- Fall '13