02 goals of macro

8/12/2019 02 Goals of Macro

1/18

1

SECTION 2: MAJOR GOALS OF MACROECONOMICSGOAL 1PROMOTE ECONOMIC GROWTH

Increase output of goods and services

oost output per capita!

HOW "O WE MEA#$RE TOTAL O$TP$T%NOMINAL GRO## "OME#TIC PRO"$CT &G"P'

T(e do))ar va)ue of fina) output of goods and services produced in t(e$nited #tates!

1! I* O$TP$T INCREA#E" 1+,-T(is is econo.ic gro/t(

0! I* PRICE# INCREA#E" 1+,-T(is is not econo.ic gro/t(T(is is inf)ation

CALC$LATION O* A GROWTH RATE-

Gro/t( rate &Ne/ 2 O)d'3O)d 4 1++,

E4a.p)e-Ne/ va)ue 050++O)d va)ue 05+++

Gro/t( rate &00++ 2 0+++'30+++ 4 1++, !1+ 4 1++, 1+,

NOMINAL G"P-6a)ue of output ca)cu)ated using prices t(at e4isted during t(e 7ear /(ent(e goods and services /ere produced

6a)ue of output in 0++8 using 0++8 prices

1


2/18

2

2


3/18

3

3


4/18

4

CREATION O* A CON#$MER PRICE IN"E9To create a price inde45 /e first c(oose so.e 7ear to :e t(e :ase 7ear5 ;ear +!

Ne4t /e c(oose a representative set of


5/18

5

We o:tain t(e fo))o/ing va)ues for t(e price inde4

;ear +- &P += +3 P+= +' 4 1++ &1+1?31+1?' 4 1++ 1++

;ear 1- &P 1= +3 P+= +' 4 1++ &11@831+1?' 4 1++ 110!8

;ear 0- &P 0= +3 P+= +' 4 1++ &10?>31+1?' 4 1++ 108!1?

In$er-re$a$ion of $he -ri+e index:Ite.s /(ic( cost 1++ during ;ear + cost 110!8 during ;ear 1 and 108!1? during;ear 0!

T(us5 t(e cost of t(e ite.s (as increased and /e (ave (ad inf#a$ion !

Prices are 10!8 , (ig(er during ;ear 1 t(an during ;ear +!

Prices are 08!1?, (ig(er during ;ear 0 t(an during ;ear +!

Inf#a$ion ra$e .e$/een Year * and Year 2"uring ;ear 1 t(e price inde4 (ad a va)ue of 110!8 ! "uring ;ear 0 t(e priceinde4 (ad a va)ue of 108!1?!

T(e inf)ation rate is t(e rate of gro/t( in prices! We o:tain-Inf)ation rate F&108!1? 2 110!8 '3110!8 4 1++, 11!88,

#uppose t(e :ase 7ear /as 1 B>! T(us t(e price inde4 in 1 B> /ou)d :e 1++! Assu.e prices during 0++8 are ?8, (ig(er t(an during 1 B>T(en t(e PRICE IN"E9 for 0++8 /ou)d :e 1?8

REAL GDP -6a)ue of output during an7 7ear ca)cu)ated using prices t(at e4isted inso.e .a e 0ear

CALC1LATION OF REAL GDP GI EN A SET OF PRICES AND &1ANTITIES#uppose /e are given a set of prices and a set of


6/18

6

E9AMPLE-#uppose an econo.7 produced t(e fo))o/ing + 1+ >8 10 >? 1@#(oes 0@ 18 08 1 0B 1Coats 1? 01 0+ 08 0> 0

We o:tain t(e fo))o/ing va)ues for REAL GDP -

;ear +-P += + >+41+ D 0@418 D 1? 4 01 >++ D > + D >8? 15+1?

;ear 1-

P += 1 >+410 D 0@41 D 1? 4 08 > + D >B@ D @08 151;ear 0-P += 0 >+41@ D 0@41 D 1? 4 0 @0+ D @8 D @@0 15>1B

We o:tain t(e fo))o/ing va)ues for NOMINAL GDP -

;ear +-P += + >+41+ D 0@418 D 1? 4 01 >++ D > + D >8? 15+1?

;ear 1-P 1= 1 >8410 D 0841 D 0+ 4 08 @0+ D @++ D 8++ 15>0+

;ear 0-P 0= 0 >?41@ D 0B41 D 0> 4 0 81B D 8>0 D 8 B 15 @B

1! No.ina) G"P increased eac( 7ear! T(is is :ecause OTH 1B 2 11 '311 4 1++, 10!?8,

6


7/18

7

CALC1LATION OF REAL GDP GI EN A PRICE INDEX#uppose /e (ave data s(o/ing no.ina) G"P for eac( 7ear and /e (ave a priceinde4 using5 sa75 1 B> as t(e :ase 7ear! Rea) G"P for5 sa75 ;ear 1 > isca)cu)ated :7 va)uing t(e t(ings produced during 1 > using 1 B> &:ase 7ear'prices!

FORM1LA FOR REAL GDP d"rin, Year i:

Rea# GDP i 3 %No4ina# GDP i (Pri+e index i) x *''

CALC$LATION O* REAL G"P-

No.ina) G"P during 1 > 5>@>!> :i))ionPrice inde4 during 1 > 1@@!8 &:ased on 1 B> 1++'

Rea) G"P during 1 > & 5>@>!> 3 1@@!8' 4 1++ @5>B !B+ :i))ion

No.ina) G"P during 1 @ 5?>B!@ :i))ionPrice inde4 during 1 @ 1@B!0Rea) G"P during 1 @ & 5?>B!@ 3 1@B!0' 4 1++

@58@ !B+ :i))ion

GROWTH RATE O* NOMINAL G"P ETWEEN 1 > AN" 1 @

GROWTH RATE &NEW 2 OL"'3OL" 4 1++, & ?>B!@ 2 >@>!>'3 >@>!> 4 1++, !+ 0> 4 1++, !0>,

GROWTH RATE O* REAL G"P ETWEEN 1 > AN" 1 @

&@8@ !B 2 @>B !B'3@>B !B 4 1++, !+>8? 4 1++, >!8B,

NOMINAL G"P 6#! REAL G"P"uring 1 @5 no.ina) G"P increased :7 !0>,T(is ta es into account t(e increases in output AN" t(e increases in prices

"uring 1 @5 rea) G"P increased :7 >!8B,T(is ta es into account ONL; increases in


8/18

8

R1LE OF 52If so.e


9/18

9

REAL O$TP$T PER CAPITA REAL G"P3POP$LATION

If popu)ation gro/s @,5 /e need a @, increase in rea) G"P to .aintainour standard of )iving!

Rea) output per (our /or ed Rea) G"P 3 Hours /or ed

TO PROMOTE GROWTH-INCREA#E AN" IMPRO6E PH;#ICAL CAPITAL-

PLANT AN" E=$IPMENT factories5 :ui)dings5 too)s5 .ac(iner75co.puters5 tec(no)og75 etc!

*$LL $TILIKATION of p)ant and e


10/18

10

POLIC; GOAL 0-

MAINTAIN #TA LE PRICE#

MAINTAIN THE P$RCHA#ING POWER O* THE "OLLAR

MAINTAIN A LOW IN*LATION RATE

10


11/18

11

11


12/18

12

12


13/18

13

13


14/18


15/18

15

15


16/18

16

16


17/18

17

GOAL @#MOOTH O$T THE $#INE## C;CLE

E9PAN#IONPeriod /(en REAL G"P is gro/ing

PEA -Turning point /(en REAL G"P pea s and :egins fa))ing

CONTRACTION &RECE##ION'Period /(en REAL G"P is fa))ing

TRO$GHTurning point /(en REAL G"P stops fa))ing and :egins rising

17


18/18

18

RECE##ION AN" "EPRE##ION

RECESSION &unofficia) definition'T/o consecutive

02 goals of macro

Documents