Description
Important Concepts of Macroeconomics
1/30/2013
1
Economic Growth
? The postwar convergence of U.S. and Japanese
? ? ? ? ?
economies. Postwar Annual Growth Rates 1973-1992 U.S. Japan Diff. GDP per capita 1.38 3.03 1.65 Capital per capita2.89 6.38 3.49 Japan outpaced U.S. in growth of GDP per capita by 1.65% per year
1/30/2013
2
? ? ? ?
? ? ? ? ?
Capital per capita difference of 3.49% per year We will go back to our eq. .25*3.49=.87 Out of 1.65 .87 is because of increase in capital and rest .78 is because of relative change in technology. GDP per capita Growth-1950-73 U.S. Japan Diff. 2.42 8.01 5.59 per year Capital per capita growth rate 2.48 6.92 4.44 per year
3
1/30/2013
Empirical Evidence
? According to Robert Solow ? GDP growth rate ? Technical progress, increased labour supply,capital ? ? ? ?
?
accumulation Per capita GDP growth rate Tech. Progress, capital accumulation Other factors Natural resources e.g.Norway’s growth rate is because of discovery of oil resources Human capital
1/30/2013
4
Inflation
Inflation denotes a rise in the general level of prices The rate of inflation is the rate of change of the general price level. It is measured as follows: Price level yr(t)-price level yr(t-1) price level yr(t-1) * 100 Price level is a weighted average of the prices of the diff. goods & services.
1/30/2013
5
Inflation Rate
? Find out the inflation rate.
? India’s WPI in 2006-07 – 199 ?
2007-08 – 211.5
?
1/30/2013
6
Price Indexes
? Consumer Price Index (CPI)
? GDP Price Index (GDP deflator) ? Wholesale Price Index (WPI)
1/30/2013
7
CPI
? ? ? ? ?
CPI for industrial workers CPI for non manual employees CPI for agri. Labours CPI for rural labours The CPI for industrial workers is the most well known of these ? Prices of more than 300 commodities are collected from the 78 centers of the country on the weekly or monthly basis ? Only final goods are considered
1/30/2013
8
CPI
? Weighted average of these prices are calculated
? The weights are assigned according to their economic
importance
1/30/2013
9
GDP Price Index (GDP deflator)
? It includes the prices of all goods & services produced
? ? ? ?
in the economy C+I+G+X-M In CPI only consumption items are considered GDP deflator = nominal GDP real GDP
1/30/2013
10
Real & Nominal GDP
? 2000 nominal GDP nominal real
? ?
?
? ? ? ?
GDP GDP 2008 2008 Com. Prodn price pn pr pn pr 1 1 1 2 2 2 1 2 1 0.50 3 .75 3 .50 1.50 6.25 3.50 Find out GDP deflator
1/30/2013
11
Diff. between CPI & GDP deflator
? GDP deflator price of much wider group than CPI ? CPI basket of goods which is same from year to year ? GDP deflator differs from year to year depending on what is
produced in that year ? CPI directly includes prices of imports of goods. ? GDP deflator prices produced in the country
1/30/2013
12
WPI
? It includes prices of raw material, semi finished goods &
also consumption goods ? It is measured at an early stage of distribution system ? CPI measures prices of urban area ? WPI is constructed from prices of the level of the 1st significant commercial transaction ?
1/30/2013
13
WPI
? WPI frequently signals changes in the price level
? Therefore WPI is closely watched by policy makers
1/30/2013
14
Calculation of the rate of inflation
? Category
? ? ? ? ? ?
?
?
importance change from 2007 to 2008 % % Food & bev. 15.6 1.4 Hsg. 40.9 2.6 Medical care 6.0 4.5 Other 37.5 3.9
1/30/2013
15
Aggregate Supply and Aggregate Demand
? It helps to explain major trends in output and prices
? Agg.demand-Total amount that diff. Sectors in the
economy spend in a given time ? It is the sum of spending by cons., businesses ,Govt. ? It depends on level of prices,monetary policy,fiscal policy and other factors(war, weather etc.)
1/30/2013
16
Agg.Supply
? It is the total quantity of goods & services that
businesses willingly produce and sell in a goven period. ? It depends on the price level productive capacity of the economy & the level of costs
1/30/2013
17
Eqilibrium
? Demanders willingly buy what businesses willingly sell
1/30/2013
18
Diff.bet AD,AS&DD,SS
? AD,AS-Total output &overall price level
? Mon. pol, fis pol,& capital stock held const. ? DD,SS-Price & quantity of individual commodities
? Income & other prices const.
1/30/2013
19
doc_341353515.pptx
Important Concepts of Macroeconomics
1/30/2013
1
Economic Growth
? The postwar convergence of U.S. and Japanese
? ? ? ? ?
economies. Postwar Annual Growth Rates 1973-1992 U.S. Japan Diff. GDP per capita 1.38 3.03 1.65 Capital per capita2.89 6.38 3.49 Japan outpaced U.S. in growth of GDP per capita by 1.65% per year
1/30/2013
2
? ? ? ?
? ? ? ? ?
Capital per capita difference of 3.49% per year We will go back to our eq. .25*3.49=.87 Out of 1.65 .87 is because of increase in capital and rest .78 is because of relative change in technology. GDP per capita Growth-1950-73 U.S. Japan Diff. 2.42 8.01 5.59 per year Capital per capita growth rate 2.48 6.92 4.44 per year
3
1/30/2013
Empirical Evidence
? According to Robert Solow ? GDP growth rate ? Technical progress, increased labour supply,capital ? ? ? ?
?
accumulation Per capita GDP growth rate Tech. Progress, capital accumulation Other factors Natural resources e.g.Norway’s growth rate is because of discovery of oil resources Human capital
1/30/2013
4
Inflation
Inflation denotes a rise in the general level of prices The rate of inflation is the rate of change of the general price level. It is measured as follows: Price level yr(t)-price level yr(t-1) price level yr(t-1) * 100 Price level is a weighted average of the prices of the diff. goods & services.
1/30/2013
5
Inflation Rate
? Find out the inflation rate.
? India’s WPI in 2006-07 – 199 ?
2007-08 – 211.5
?
1/30/2013
6
Price Indexes
? Consumer Price Index (CPI)
? GDP Price Index (GDP deflator) ? Wholesale Price Index (WPI)
1/30/2013
7
CPI
? ? ? ? ?
CPI for industrial workers CPI for non manual employees CPI for agri. Labours CPI for rural labours The CPI for industrial workers is the most well known of these ? Prices of more than 300 commodities are collected from the 78 centers of the country on the weekly or monthly basis ? Only final goods are considered
1/30/2013
8
CPI
? Weighted average of these prices are calculated
? The weights are assigned according to their economic
importance
1/30/2013
9
GDP Price Index (GDP deflator)
? It includes the prices of all goods & services produced
? ? ? ?
in the economy C+I+G+X-M In CPI only consumption items are considered GDP deflator = nominal GDP real GDP
1/30/2013
10
Real & Nominal GDP
? 2000 nominal GDP nominal real
? ?
?
? ? ? ?
GDP GDP 2008 2008 Com. Prodn price pn pr pn pr 1 1 1 2 2 2 1 2 1 0.50 3 .75 3 .50 1.50 6.25 3.50 Find out GDP deflator
1/30/2013
11
Diff. between CPI & GDP deflator
? GDP deflator price of much wider group than CPI ? CPI basket of goods which is same from year to year ? GDP deflator differs from year to year depending on what is
produced in that year ? CPI directly includes prices of imports of goods. ? GDP deflator prices produced in the country
1/30/2013
12
WPI
? It includes prices of raw material, semi finished goods &
also consumption goods ? It is measured at an early stage of distribution system ? CPI measures prices of urban area ? WPI is constructed from prices of the level of the 1st significant commercial transaction ?
1/30/2013
13
WPI
? WPI frequently signals changes in the price level
? Therefore WPI is closely watched by policy makers
1/30/2013
14
Calculation of the rate of inflation
? Category
? ? ? ? ? ?
?
?
importance change from 2007 to 2008 % % Food & bev. 15.6 1.4 Hsg. 40.9 2.6 Medical care 6.0 4.5 Other 37.5 3.9
1/30/2013
15
Aggregate Supply and Aggregate Demand
? It helps to explain major trends in output and prices
? Agg.demand-Total amount that diff. Sectors in the
economy spend in a given time ? It is the sum of spending by cons., businesses ,Govt. ? It depends on level of prices,monetary policy,fiscal policy and other factors(war, weather etc.)
1/30/2013
16
Agg.Supply
? It is the total quantity of goods & services that
businesses willingly produce and sell in a goven period. ? It depends on the price level productive capacity of the economy & the level of costs
1/30/2013
17
Eqilibrium
? Demanders willingly buy what businesses willingly sell
1/30/2013
18
Diff.bet AD,AS&DD,SS
? AD,AS-Total output &overall price level
? Mon. pol, fis pol,& capital stock held const. ? DD,SS-Price & quantity of individual commodities
? Income & other prices const.
1/30/2013
19
doc_341353515.pptx