1、Questions What key data do macroeconomists look at?How are key macroeconomic data estimated and calculated?What is the difference between“nominal”and“real”values?How are stock market values related to interest rates?1Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Questions How a
2、re interest rates related to the price level and the inflation rate?How is unemployment related to total production?What is right-and what is wrong-with the key measure of economic activity,real GDP?2Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Importance of Data Economist
3、s use quantitative data to examine and understand behaviorpricesquantitiesvalues Data can be used in two waysmake quantitative forecaststest economic theories3Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Most Important Macroeconomic Data real GDP the unemployment rate the infl
4、ation rate the interest rate the level of the stock market the exchange rate4Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Table 2.1-The Six Key Economic Variables5Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Exchange Rate The nominal exchange rate is
5、 the relative price of two different currenciesdetermined in the foreign exchange market Example1.00 equals$1.20$1.00 equals 0.836Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Exchange Rate Domestic exporters earn foreign currency when they export productsneed to trade the
6、foreign currency for dollars Foreign producers earn dollars when U.S.residents import their productsneed to trade the dollars for foreign currency7Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Figure 2.1-The Market for Foreign Exchange8Copyright 2002 by The McGraw-Hill Companie
7、s,Inc.All rights reserved.The Exchange Rate The real exchange rate is the nominal exchange rate adjusted for changes in the value of the currencydepends on the nominal exchange rate and the price level9Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Exchange Rate Example 1nom
8、inal exchange rate changes from$1.20=1.00 to$2.40=1.00price level doublesreal exchange rate is unchanged Example 2nominal exchange rate remains at the same level($1.20=1.00)price level doublesreal exchange rate falls by half10Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Ex
9、change Rate Example 3nominal exchange rate increases from$1.20=1.00 to$2.30=1.00price level remains the samereal exchange rate doubles11Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Exchange Rate To calculate the real exchange rate(),you need three pieces of informationpric
10、e level in the home country(P)price level abroad(P*)nominal exchange rate(e)*PPe 12Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Exchange Rate There are many different currencies in the worldmany different exchange rates Economists construct an exchange rate index to repres
11、ent“the”exchange rateeach country receives a weight equal to its share of total U.S.trade13Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Exchange Rate The exchange rate index is by averaging each countrys current exchange rate relative to its exchange rate in the base year(
12、1992)countries all trade)of share(1992 rate)exchange(1992rate)exchange(Current 100 Index14Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Figure 2.2-The Exchange Rate Index,1992-199815Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Stock Market The most re
13、presentative index of the U.S.stock market is the Standard and Poors Composite Index(S&P 500)The most commonly discussed index of the U.S.stock market is the Dow-Jones Industrial Average16Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Stock Market Stock market averages are i
14、n nominal termsmust divide by some measure of the price level to get the real value of the stock market The real value of the stock market is a sensitive indicator of the relative optimism or pessimism of investorscan forecast future investment spending17Copyright 2002 by The McGraw-Hill Companies,I
15、nc.All rights reserved.The Stock Market Investors face a choice between holding stocks and holding bondsstocks are shares of ownership of a corporation entitles you to a portion of the companys profitsbonds are debts that the corporation owes you pays periodic interest payments and returns principal
16、 to you at maturity18Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Stock Market Rates of returnfor bonds,the rate of return is the interest rate(r)for stocks,the rate of return is the ratio of earnings per share(Es)to the price paid(Ps)Stocks are riskyinvestors may require
17、a risk premium(s)19Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Stock Market Investors will hold only stocks ifsssrPEsssrPE Investors will hold only bonds if20Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Stock Market Investors will hold both stoc
18、ks and bonds ifsssrPE This means that the value of a stock is equal tosssrEP21Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Stock Market How can we measure Es?newspaper reports what the firms accountants have calculated(Ea)investors are interested in some long-run average o
19、f expected future earnings(Es)need an estimate of the relationship between Ea and Es22Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Figure 2.3-Calculating the Value of aBasket of Stocks23Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Stock Market provid
20、es information onthe current level of profits(earnings)whether investors are optimistic or pessimisticthe current cost of capitalattitudes toward risk24Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Interest Rate is the price at which purchasing power can be shifted from the
21、 future into the present is not a single lump sum,but an ongoing stream of payments made over timeis a flow variable25Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Interest Rate There is a large number of different interest rates that vary byriskdurationtax treatment Publis
22、hed interest rates are nominal interest ratesrate inflation-rate interest nominalrate interest real26Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Figure 2.4-The Real versus the NominalInterest Rate27Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Price
23、Level is most frequently measured by the Consumer Price Index(CPI)whichis calculated monthly by the Bureau of Labor Statisticsis an expenditure-weighted index28Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Table 2.5-Calculating a Price Index for Fruit:An Example29Copyright 2002
24、 by The McGraw-Hill Companies,Inc.All rights reserved.The Consumer Price Index Price index formulaweight)index banana(bananas of priceyear-Basetoday bananas of Priceweight)indexpear(pears of priceyear-Basetoday pears of Priceweight)index apple(apples of priceyear-Basetoday apples of Priceweight)inde
25、x orange(oranges of priceyear-Basetoday oranges of PriceIndex30Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Consumer Price Index In the base year,the price index will equal 100100 4)($0.40$0.40 9)($0.90$0.9042)($1.20$1.20 45)($0.75$0.75Index31Copyright 2002 by The McGraw-H
26、ill Companies,Inc.All rights reserved.The Consumer Price Index In the subsequent year,the price index will equal 138138 4)($0.40$0.40 9)($0.90$0.9042)($1.20$1.00 45)($0.75$1.50Index32Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Kinds of Index Numbers Laspeyres indexuses relati
27、ve expenditure levels in a fixed base year as weightsexample:Consumer Price Index Paasche indexuses current,variable expenditure levels as weightsexample:GDP deflator33Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Kinds of Index Numbers All price indices are imperfectthe Laspey
28、res index overstates the effects of price increases based on a fixed market basket does not take into account that consumers substitute relatively cheaper goods for relatively more expensive goods when prices rise(substitution bias)34Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserve
29、d.Kinds of Index Numbers All price indices are imperfectthe Paasche index understates the effects of price increases does take account of substitution does not take into account the fact that substituted items are less-valued than the items they replace35Copyright 2002 by The McGraw-Hill Companies,I
30、nc.All rights reserved.The Inflation Rate is a measure of the rate of change in the price level over timeis a flow variable can be measured using different price indicesConsumer Price Index(CPI)GDP deflator36Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Figure 2.5-Different Mea
31、sures of U.S.Inflation,1960-200037Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Unemployment Rate is the fraction of people who want a jobare looking for a jobcannot find a job is calculated using the Current Population Surveymonthly survey by the Bureau of Labor Statistics
32、38Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Unemployment Rate Individuals are classified into one of four categoriesthose who are employedthose who are out of the labor force and do not want a job currentlythose who do want a job currently,but have given up looking for
33、onethose who do want a job and are currently looking for one39Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Unemployment RateWork)for (Looking(Employed)forceLabor Work)for (Looking(Employed)Workfor LookingForceLabor Workfor LookingRate ntUnemployme40Copyright 2002 by The Mc
34、Graw-Hill Companies,Inc.All rights reserved.Figure 2.6-The U.S.Unemployment Rate since 195041Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.The Unemployment Rate is a stock variable may underestimate the real experience of unemploymentdiscouraged workersworkers who are part-time
35、 for economic reasons vary by demographic group42Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Figure 2.7-U.S.Unemployment Rates by Demographic Group,1960-200043Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Okuns Law describes the relationship between unem
36、ployment and output in the U.S.implies that a 1 percentage-point fall in unemployment is associated with an extra 2.5 percentage points of growth in real GDPnt)unemployme in change point-e(percentag2.5-output)potential in growth(%GDP real in change%44Copyright 2002 by The McGraw-Hill Companies,Inc.A
37、ll rights reserved.Figure 2.8-Okuns Law45Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Real GDP is calculated by adding up the value of all final goods and services produced in the economyis a flow variable includes final goods and services purchased byconsumersfirmsthe governm
38、ent46Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Nominal versus Real GDP Nominal GDP measures current output using current-year priceschanges in nominal GDP can occur from changes in either output or prices Real GDP measures current output using prices from a base yearchanges
39、 in real GDP can only occur if output changes47Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Nominal versus Real GDP ExampleProductBase-YearOutputBase-YearPrice($/lb.)CurrentOutputCurrentPrice($/lb.)Oranges6 lbs.$0.758 lbs.$1.00Apples3.5 lbs.$1.203.5 lbs.$1.20Pears1 lb.$0.901 l
40、b.$0.50Bananas1 lb.$0.401 lb.$0.4048Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Base YearNominal GDP=$10.00Real GDP=$10.00 Current YearNominal GDP=$13.10Real GDP=$11.50Nominal versus Real GDP49Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.More on GDP Int
41、ermediate goodsare goods sold to a firm for use in further productionare excluded from GDP Changes in inventoriesare counted as part of investment Imputationsare made for goods and services not sold through markets50Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Components of Re
42、al GDP(Y)Consumption(C)Investment(I)residential structuresnon-residential structuresproducers durable equipmentchanges in business inventories Government purchases(G)Net exports(NX)NXGICY51Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Table 2.8-Components of GDP,Third Quarter o
43、f 200052Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.What Is and Is Not in GDP Included in GDP(but should not be)replacement of worn-out or obsolete capitalgovernment purchases which could be counted as intermediate goods Not included in GDP(but should be)household productiond
44、epletion of scarce natural resources“bads”53Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Figure 2.9-Labor Force Participation Ratesby Gender,1948-199654Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Chapter Summary Because goods and services are bought and
45、 sold with prices attached,economists have a lot of quantitative data to work with The real exchange rate is the relative price at which two countries goods exchange for each othercalculated by adjusting the nominal exchange rate for changes in the price levels of the two countries55Copyright 2002 b
46、y The McGraw-Hill Companies,Inc.All rights reserved.Chapter Summary The level of the stock market reflects the variables which affect investmentcurrent profitsinvestors optimism or pessimismthe real rate of interestattitudes toward risk The real interest rate is calculated by subtracting the inflati
47、on rate from nominal interests rates56Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Chapter Summary The most-commonly seen measure of the price level is the Consumer Price Index(CPI)the inflation rate is the rate of change in the CPI Unemployment and output are linked through O
48、kuns lawa 1 percentage-point decrease in the unemployment rate leads to a 2.5 percent increase in output 57Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.Chapter Summary Real GDP is the most commonly-seen measure of the overall level of economic activitycalculated using prices from a base year What is and what is not included in GDP is the result of economists beliefs in the 1940s and 1950s about what would be possible to measure easily58Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.
