Chapter 2: The Data of Macroeconomics

What is the difference between the establishment survey and household survey?

Establishment survey does not include self-employed, counts a person holding two different jobs twice in the labor force. The household survey includes self-employed, and counts a person holding two different jobs as one in the labor force.

What is the formula for GDP Deflator? What is its purpose?

GDP Deflator allows an economist to analyze the changes in the overall level of prices in the economy. The formula for GDP Deflator is GDP Deflator = Nominal GDP / Real GDP

What is the difference between GDP and GNP?

GDP is the price of all goods and services produced by a domestic economy for a year (within our country, within our borders) and GNP is the price of all goods and services supplied by the nation's residents (anywhere in the world)

List the two things that GDP measures. How can GDP measure two things at once?

GDP measures the total income of everyone in the economy, and the total expenditure on goods and services. Since these two are equal to each other, GDP can measure both at the same time.

Why is GDP the best measure to gage economic performance?

GDP provides a scope of the entire country's national income/expenditures. Both of these are interchangeable.

Who are discouraged workers?

Individuals who would like to work but have given up looking for a job. Not currently looking for one.

What is the labor force participation rate formula?

LFPR = (Labor Force / Adult Population) x 100

What are the two ways to think of GDP?

One can think of GDP as the total income of everyone in the economy, or the total expenditure on the economy's output of goods and services.

On a graph, why is nominal GDP steeper than real GDP?

Prices generally rise over time

Why does the CPI tend to overstate inflation?

The Consumer Price Index measures the price of a fixed basket of goods, not allowing the basket of goods to change over time as consumers respond to changes in relative prices. (Substitution effects, complementary goods, new goods, unmeasured changes in quality etc.)

How has export growth contributed to supply chains, especially in the auto industry?

The development of supply chains, where products are manufactured in different countries, create vertical-supply relationships. Manufacturing work is performed wherever is most efficient. Example: The United States and Mexico. Auto industry, 40% of the content of Mexican exports are of U.S origin.

Why does GDP only count the final value of its sold goods and services?

To avoid double counting the "ingredient" costs of products, the GDP only counts the final value of all goods and services sold.

What is the formula for Unemployment rate?

Unemployment Rate = (Number of Unemployed / Labor Force) x 100

What is the unemployment rate?

the percentage of the labor force that is unemployed

What does the consumer price index measure? List three ways in which it differs from the GDP deflator.

Consumer price index measures the price of a fixed basket of goods and services purchased by a typical consumer relative to the same basket in the base year. The CPI differs from the GDP deflator 1. The CPI uses a fixed basket of goods over time while GDP changes its basket 2. The CPI includes foreign goods while GDP measures only domestic goods 3. The GDP deflator measures prices of all goods and services produced, whereas the CPI measures the prices of only the goods and services bought by consumers.

What are the four components of GDP? Give an example of each.

Consumption : Texas A&M students buy Barnes and Noble textbooks Investment: U.S government buys Apple stock Government Purchases: U.S government buys nuclear warheads from foreign nations Net Exports: Midwest farmers export their grains to China

What is the formula for Labor Force?

Labor Force = Number of Employed + Number of Unemployed

What is the difference between real GDP and nominal GDP? Which provides a better view of economic well-being? Why?

Real GDP uses constant prices, while nominal GDP uses current prices. Real GDP utilizes a base-year price to calculate their GDP. Real GDP provides a better measure of economic well-being since economic variables - such as supply, demand and price - change frequently.

Why is it important to seasonally adjust data?

Removing seasonal effects on data allows a researcher to compare month to month rather than having different factors skewing the data.

What is a Laspeyres index, what is a Paasche index, and which is the superior measure of the CPI?

The Laspeyres index is a price index with a fixed basket of goods. The Paasche index is a price index with a changing basket of goods. Neither is clearly superior in measuring the cost of living, since both overstate and understate the cost of living, respectively. The Laspeyres index overstates the CPI since it fails to take consumer substitution into account. The Paasche index understates the cost of living since it fails to take substitutions into account.

How are the CPI and PCE deflator similar, and how are they different?

The Personal Consumption Expenditure is the ratio of nominal consumer spending to real consumer spending. Allows the basket of goods to change over time, so preferred by the Federal Reserve.

Why did former President Barack Obama's unemployment rate draw a big controversy?

Under the former President, the Bureau of Labor Statistics excluded "discouraged workers" from its unemployment rate. These workers had given up looking for a job, and the BLS made the unemployment rate look lower than it truly was at the time.

Finish the formula and define the variables. Y =

Y = C + I + G + NX Y = GDP C = Consumption I = Investment G = Government Spending NX = Net Exports NX = Exports - Imports