Chapter 23: Measuring the Income of a Nation

00:52:38
https://www.youtube.com/watch?v=EK8RgiQpWM4

الملخص

TLDRThe video discusses how to measure the economic health of a nation using Gross Domestic Product (GDP). GDP is defined as the market value of all final goods and services produced within a country in a specified time period. It is made up of consumption, investment, government purchases, and net exports. The distinction between nominal GDP and real GDP is highlighted, illustrating that real GDP accounts for price changes over time. The video also emphasizes the limitations of GDP in assessing overall economic well-being, noting that it does not consider important social factors like education quality or health.

الوجبات الجاهزة

  • 📈 GDP measures the economic health of a nation.
  • 💰 GDP is composed of consumption, investment, gov purchases, and net exports.
  • 📊 Nominal GDP does not account for inflation; real GDP does.
  • 🧮 GDP deflator indicates price level changes over time.
  • 🚫 GDP does not measure factors like education or health.

الجدول الزمني

  • 00:00:00 - 00:05:00

    The video begins by introducing the concept of measuring a nation's economic health, with a focus on income as a key indicator. It emphasizes the importance of understanding the overall economic situation, initiating the discussion around Gross Domestic Product (GDP) as a primary measure.

  • 00:05:00 - 00:10:00

    Gross Domestic Product (GDP) is defined as the measure of income for everyone in an economy. The video plans to explore the meaning of GDP, its calculation, and its relevance in measuring a country's economic wellbeing, while also hinting at its limitations.

  • 00:10:00 - 00:15:00

    The process of measuring GDP through circular flow is explained. It highlights the distinction between expenditure and income, emphasizing that households' expenditure is relatively easier to measure than their income as it may be underreported due to taxation.

  • 00:15:00 - 00:20:00

    An official definition of GDP is presented, which considers the market value of all final goods and services produced within a country during a specific timeframe. The importance of this definition is explored, particularly in focusing on legal market activity.

  • 00:20:00 - 00:25:00

    Further discussion on the definition of GDP clarifies the significance of 'final goods' in evaluation and explains that intermediate goods are not counted to avoid double counting. The emphasis is placed on newly produced goods and services for accurate GDP measurement.

  • 00:25:00 - 00:30:00

    The geographical constraints of GDP are outlined, indicating that only the goods produced within a country's borders are counted. Additionally, GDP is typically reported on an annual or quarterly basis for comparison purposes.

  • 00:30:00 - 00:35:00

    The components of GDP are then detailed, with a formula introduced: GDP = C + I + G + NX. Each parameter (Consumer spending, Investments, Government spending, and Net exports) plays a role in measuring economic activity, illustrating how income circulates through the economy.

  • 00:35:00 - 00:40:00

    Statistical data from 2015 illustrates consumer spending as the largest component of GDP, followed by investments and government spending, providing a concrete example of how these components contribute to the overall economy.

  • 00:40:00 - 00:45:00

    The concept of real GDP versus nominal GDP is introduced, emphasizing the need to differentiate between actual economic growth and price inflation. An explanation of real GDP calculation, using base year prices, is provided to illustrate this distinction.

  • 00:45:00 - 00:52:38

    The video concludes with mention of the GDP deflator as a measure of inflation, detailing how it is calculated and its implications for understanding changing price levels within the economy. It positions GDP as a useful but incomplete measure for assessing economic health, prompting consideration of additional factors.

اعرض المزيد

الخريطة الذهنية

فيديو أسئلة وأجوبة

  • What is GDP?

    GDP stands for Gross Domestic Product and measures the income of everyone in an economy.

  • What are the components of GDP?

    The components of GDP are consumption, investment, government purchases, and net exports.

  • What is the difference between nominal GDP and real GDP?

    Nominal GDP measures the market value at current prices, while real GDP adjusts for inflation to reflect the true output of goods and services.

  • What does the GDP deflator measure?

    The GDP deflator measures the overall level of prices in the economy over time.

  • What are some limitations of using GDP as a measure of economic health?

    GDP ignores factors like quality of education, health of the population, environmental quality, and income distribution.

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الترجمات
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التمرير التلقائي:
  • 00:00:00
    in this video we're going to talk about
  • 00:00:02
    measuring the income of a nation so one
  • 00:00:06
    of the things that we're going to be
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    interested in is is looking at how to
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    judge the health of an economy of a
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    nation so if I were to give you as an
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    assignment to say try to investigate my
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    economic health and I said that you can
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    you need to think about the pieces of
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    information that you would want to
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    gather from me that you would use to
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    figure out whether or not my economic
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    situation is good or bad probably one of
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    the first things that you would think of
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    is you would be interested in my income
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    right because that that's not going to
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    tell you everything about me I could
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    have high income and poor health or high
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    income and and there could be other I
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    could have a lot of debt so it doesn't
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    give you a complete picture but that
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    would be a good place to start and and
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    we're going to do that with an economy
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    so we want to think about a way of
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    measuring the income of everyone in an
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    economy and what we're going to do is
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    we're going to use something that we
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    call gross domestic product GDP it's
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    probably something that you may have
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    talked about in another class or
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    probably heard about at some point or
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    another but we're going to think about
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    GDP gross domestic product we're going
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    to think about what it represents we're
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    going to think about how to measure it
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    we're going to think about what are some
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    good things and some bad things about
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    using it maybe some shortcomings of
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    using it as a measure of the well being
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    the economic well-being of a country
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    it's going to be one of several
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    different measures that we're going to
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    be thinking about later on in other
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    videos we'll talk about measuring the
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    price level and we'll talk about other
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    things like unemployment we'll talk
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    about things like interest rates
  • 00:02:09
    inflation but we're going to start here
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    with grow
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    domestic product so the idea here is
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    that gross domestic product measures the
  • 00:02:19
    income of everyone in the economy
  • 00:02:22
    measures the income of everyone let's
  • 00:02:30
    say in an economy so let's talk about
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    how we're going to do that essentially
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    gross domestic product you can think
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    about it as measuring two different
  • 00:02:50
    things at the same time let's think back
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    to that circular flow diagram that we
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    were talking about in an earlier video
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    remember there we had a little box over
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    here that represented households and
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    over here we had another box that
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    represented firms up here we had the
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    market for goods and services I'm just
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    going to call this the output market
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    that's where goods and services are
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    bought and sold and then down here we
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    had the input market that's where the
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    inputs things like land labour and
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    capital are bought and sold so the
  • 00:03:41
    output the goods and services these come
  • 00:03:45
    from the firm's so these are the outputs
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    and the households buy them so those are
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    things like haircuts and solids and
  • 00:04:00
    tires and all of the different goods and
  • 00:04:03
    services economics lectures so these are
  • 00:04:07
    the outputs
  • 00:04:12
    the inputs are sold by the households
  • 00:04:14
    those are labor things like that so here
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    are the inputs and it's the firm's that
  • 00:04:20
    are buying those inputs land labor and
  • 00:04:22
    capital the dollars that households pay
  • 00:04:31
    for outputs those go in this direction
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    so these are dollars we call that
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    expenditure so the number of dollars
  • 00:04:42
    that households spend buying goods and
  • 00:04:44
    services we call that expenditure that's
  • 00:04:47
    the revenue for the firm's so I'm just
  • 00:04:50
    going to put that as dollars there
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    the firm's are buying these inputs and
  • 00:04:55
    they're paying wages and rents and
  • 00:05:01
    profits through this market to the
  • 00:05:04
    households and those dollars that the
  • 00:05:08
    households are earning for selling the
  • 00:05:10
    inputs these are dollars here we call
  • 00:05:13
    that income so it's the same number of
  • 00:05:18
    dollars here flowing circularly if we
  • 00:05:21
    measure the number of dollars right up
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    here we would call it expenditure if we
  • 00:05:25
    measure it right down here we would call
  • 00:05:27
    it income so we can measure GDP this is
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    kind of the natural way of measuring if
  • 00:05:35
    we measure the income of all the
  • 00:05:37
    households in the economy then we'd get
  • 00:05:41
    what we want but the number of dollars
  • 00:05:44
    right here is equal to the number of
  • 00:05:45
    dollars right up here and it turns out
  • 00:05:48
    that it's a little bit easier to measure
  • 00:05:50
    right up here if we think about the
  • 00:05:52
    number of dollars that households are
  • 00:05:55
    spending to buy goods and services
  • 00:05:57
    that's easier to get a grip on than the
  • 00:06:01
    amount of income that households are
  • 00:06:03
    earning one reason that that's true is
  • 00:06:06
    that you might recognize that there
  • 00:06:08
    there may be an incentive for households
  • 00:06:11
    to underreport their income because
  • 00:06:13
    they're going to get taxed on that and
  • 00:06:15
    so you might say well we could just look
  • 00:06:19
    at all of the income tax returns of
  • 00:06:21
    everybody in the economy well yeah you
  • 00:06:24
    could but
  • 00:06:25
    we we look at expenditure so you could
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    measure it here or you could measure it
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    there we're going to talk about
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    measuring it right there so let's talk
  • 00:06:35
    about the official definition of GDP so
  • 00:06:40
    this is something that we're going to
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    use I'm going to write this out and then
  • 00:06:43
    we're going to look at different parts
  • 00:06:45
    of this definition so this would be it I
  • 00:06:47
    need to get this up here so that we have
  • 00:06:49
    a good definition that we can kind of
  • 00:06:53
    break apart GDP is the market value
  • 00:06:57
    market value of all final goods and
  • 00:07:01
    services produced within a country in a
  • 00:07:17
    given period of time so let's talk about
  • 00:07:30
    all the different parts of this the
  • 00:07:32
    market value of all final goods and
  • 00:07:34
    services produced within a country in a
  • 00:07:38
    given period of time so let's start with
  • 00:07:41
    this part the market value we're going
  • 00:07:44
    to be using prices market determined
  • 00:07:47
    prices to value the goods and services
  • 00:07:50
    so we're not interested in what somebody
  • 00:07:53
    says that something's worth we're
  • 00:07:56
    interested in what what is the price
  • 00:07:58
    that this good or service is being
  • 00:08:00
    bought sold for in a market and so in
  • 00:08:04
    that sense you can see that the big
  • 00:08:07
    items with higher prices things like a
  • 00:08:09
    car or a truck would contribute more to
  • 00:08:12
    GDP than than something small like a
  • 00:08:15
    haircut okay we're going to be thinking
  • 00:08:19
    about this phrase the market value of
  • 00:08:21
    all final goods and services produced
  • 00:08:24
    within a country so we're going to be
  • 00:08:25
    thinking about all of the goods and
  • 00:08:28
    services that are produced legally so
  • 00:08:31
    nothing that that is bought and sold in
  • 00:08:33
    the underground economy is
  • 00:08:35
    going to be included there so we're not
  • 00:08:37
    talking about illegal drug purchases or
  • 00:08:39
    anything like that the market value of
  • 00:08:43
    all final goods so let's talk about what
  • 00:08:46
    a final good is a final good is is the
  • 00:08:51
    the final product okay so if we think
  • 00:08:53
    about a car that we could talk about the
  • 00:08:55
    car as the final product there are a
  • 00:08:57
    bunch of intermediate products or
  • 00:08:59
    intermediate goods that go into that
  • 00:09:01
    final goods so we aren't going to count
  • 00:09:04
    the value of those intermediate goods so
  • 00:09:08
    for example the tires on that car we're
  • 00:09:11
    not going to separately count the value
  • 00:09:13
    of the tires apart from the value of the
  • 00:09:16
    car because the value of the car
  • 00:09:17
    includes the value of the tires if we
  • 00:09:19
    counted the tires also again separately
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    we'd be double counting them so we're
  • 00:09:24
    gonna be thinking about the market value
  • 00:09:26
    of all final goods and services so these
  • 00:09:29
    are going to be tangible things that you
  • 00:09:32
    can hold in your hand like a pen they're
  • 00:09:35
    going to be intangible things like an
  • 00:09:37
    economics lecture okay so the market
  • 00:09:41
    value of all final goods and services
  • 00:09:43
    produced this term here we're going to
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    be thinking about goods that are
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    currently produced we're not going to be
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    thinking about goods that were produced
  • 00:09:54
    two years ago or five years ago so if
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    we're thinking about somebody buying a
  • 00:10:00
    used car well we're not going to count
  • 00:10:02
    the value of that car in this year's GDP
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    because it would have been counted back
  • 00:10:08
    in the year that it was produced okay so
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    we're gonna be thinking about newly
  • 00:10:12
    produced goods and services within a
  • 00:10:16
    country this phrase here we're only
  • 00:10:19
    going to be thinking about goods and
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    services produced within the geographic
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    confines of the country so we're not
  • 00:10:26
    going to be thinking if let's suppose
  • 00:10:28
    that I buy a car made in Germany we're
  • 00:10:32
    not going to be counting that as part of
  • 00:10:34
    the GDP of the United States we're only
  • 00:10:37
    going to going to be thinking about the
  • 00:10:39
    goods and services produced within the
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    geographic confines of the country that
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    we're thinking about in our case it
  • 00:10:46
    would be the United States
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    and then in a given period of time so
  • 00:10:52
    we're going to think about the the
  • 00:10:53
    market value of all the final goods and
  • 00:10:55
    services produced within the country in
  • 00:10:57
    maybe the last year so we could think
  • 00:11:00
    about this as being typically a year or
  • 00:11:03
    maybe a quarter we could think about GDP
  • 00:11:05
    for a quarter quarters three months so
  • 00:11:09
    you can see there's a lot of stuff that
  • 00:11:12
    goes into this definition of gross
  • 00:11:15
    domestic product every little phrase has
  • 00:11:18
    a very particular meaning GDP when the
  • 00:11:22
    government reports GDP it is typically
  • 00:11:25
    going to be seasonally adjusted what
  • 00:11:27
    that means is that we if we didn't
  • 00:11:31
    seasonally adjust it it wouldn't you
  • 00:11:34
    wouldn't be able to compare GDP from say
  • 00:11:36
    the final quarter of a year to GDP from
  • 00:11:40
    the first quarter of the next year and
  • 00:11:42
    the reason is that there's something
  • 00:11:44
    that happens there at the final quarter
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    of a year the holiday season when people
  • 00:11:49
    are out buying presents for other people
  • 00:11:53
    and and there's a lot more economic
  • 00:11:55
    activity in that quarter than there is
  • 00:11:56
    in other quarters typically and so what
  • 00:11:59
    we do is we seasonally adjust that so
  • 00:12:01
    that you can compare them and we don't
  • 00:12:04
    need to go into what what it means or
  • 00:12:06
    how you seasonally adjust anything just
  • 00:12:09
    keep in mind that that it is typically
  • 00:12:11
    seasonally adjusted let's talk about the
  • 00:12:15
    components of gross domestic product
  • 00:12:17
    this is going to be something that's
  • 00:12:19
    important if we think about the symbol
  • 00:12:23
    that we're going to use to stand for GDP
  • 00:12:25
    it's we typically use a Y so this is GDP
  • 00:12:29
    Y or GDP is going to be broken up into
  • 00:12:33
    several different categories it's going
  • 00:12:35
    to be C plus I plus G Plus in X let's
  • 00:12:42
    talk about what each one of these things
  • 00:12:44
    stands for so all of the dollars that go
  • 00:12:48
    into a country's GDP are going to fall
  • 00:12:52
    into one of these four categories this C
  • 00:12:56
    C is the symbol that we use to stand for
  • 00:13:00
    consumption
  • 00:13:03
    why equals C plus I plus G Plus this
  • 00:13:08
    one's going to be net exports
  • 00:13:10
    the sea is consumption this is purchase
  • 00:13:13
    of goods and services by consumers so if
  • 00:13:19
    you go out and you buy a meal at a
  • 00:13:22
    restaurant that falls into consumption
  • 00:13:24
    or if you go out and you buy a new car
  • 00:13:26
    that falls into consumption or you buy a
  • 00:13:27
    new pair of shoes that falls into
  • 00:13:29
    consumption i stands for investment
  • 00:13:35
    investment we need to talk about that
  • 00:13:37
    term a little bit we're going to use
  • 00:13:42
    this term investment a little bit
  • 00:13:44
    differently than you're probably used to
  • 00:13:45
    thinking about it you're used to
  • 00:13:48
    thinking about the word investment
  • 00:13:50
    probably is meaning what you're doing if
  • 00:13:54
    you buy stocks or bonds and that's not
  • 00:13:56
    how an economist would think about the
  • 00:13:58
    word investment if I if I were to go out
  • 00:14:00
    and buy a stock shares of a stock in a
  • 00:14:05
    corporation then an economist would
  • 00:14:08
    describe that as saving what I'm doing
  • 00:14:11
    is I'm taking some of my purchasing
  • 00:14:12
    power I'm purchasing an asset with it
  • 00:14:15
    with the hopes that that ass asset will
  • 00:14:18
    appreciate in value so I will have more
  • 00:14:21
    purchasing power in the future
  • 00:14:22
    that's called saving investment here is
  • 00:14:27
    what we call it when a business buys say
  • 00:14:32
    a building or equipment that it's going
  • 00:14:34
    to use to produce more goods and
  • 00:14:36
    services in the future so this is is
  • 00:14:40
    businesses purchasing equipment or
  • 00:14:46
    structures new equipment or a new
  • 00:14:52
    building a new structure that's
  • 00:14:54
    investment you can also have household
  • 00:14:57
    investment if a household if a family
  • 00:15:00
    were to buy a new house we would call
  • 00:15:03
    that residential investment or household
  • 00:15:05
    investments so households can do some of
  • 00:15:08
    this but typically this is going to be
  • 00:15:10
    businesses that are engaging in
  • 00:15:13
    investment G stands for government
  • 00:15:15
    purchase
  • 00:15:19
    so if the government spends money to say
  • 00:15:26
    build a new highway or build a building
  • 00:15:30
    in a library in some town that would
  • 00:15:34
    fall into government purchases and then
  • 00:15:37
    finally in X here this is what we call
  • 00:15:41
    net exports net exports anytime you have
  • 00:15:49
    net something like net income then that
  • 00:15:52
    means something's means to subtract it
  • 00:15:54
    off net exports is just exports minus
  • 00:15:57
    imports exports minus imports so we want
  • 00:16:07
    to count the things that are produced in
  • 00:16:11
    the United States that foreigners buy
  • 00:16:14
    from us those things need to be counted
  • 00:16:18
    in GDP but we don't want to count the
  • 00:16:22
    things that were produced in other
  • 00:16:24
    countries that US citizens import into
  • 00:16:27
    the country those should not be counted
  • 00:16:28
    as part of GDP because they were not
  • 00:16:31
    produced within the country so we need
  • 00:16:33
    to subtract those things off let's talk
  • 00:16:36
    about what would happen let's suppose I
  • 00:16:39
    let's use the car example suppose I were
  • 00:16:41
    to buy a car produced in Germany now we
  • 00:16:47
    know that that should have no impact on
  • 00:16:49
    GDP as a whole but let's think about how
  • 00:16:52
    it's going to affect the components of
  • 00:16:54
    GDP if I were to buy a car imported from
  • 00:16:58
    Germany that's going to show up as part
  • 00:17:01
    of consumption that would show up as as
  • 00:17:03
    some dollars spent by my household so it
  • 00:17:07
    would show up here is a positive but it
  • 00:17:09
    would also show up here as a negative
  • 00:17:11
    and by subtracting off the imports there
  • 00:17:14
    that means that because it shows up here
  • 00:17:16
    positive and it shows up there negative
  • 00:17:18
    the two would cancel out and it would
  • 00:17:20
    have no impact on GDP so if you think
  • 00:17:25
    about how purchases by a US citizen
  • 00:17:28
    affect GDP
  • 00:17:29
    it doesn't have any impact on GDP as a
  • 00:17:33
    whole but it certainly affects the
  • 00:17:35
    components of GDP
  • 00:17:36
    okay specifically consumption and net
  • 00:17:39
    exports let's talk about just some
  • 00:17:45
    dollar amounts and so I'll give you some
  • 00:17:50
    numbers here just to give you an idea of
  • 00:17:53
    of how large these things are if these
  • 00:17:57
    will be numbers from say 2015 if you
  • 00:18:03
    look at GDP in 2015 it was approximately
  • 00:18:08
    seventeen point nine trillion dollars
  • 00:18:12
    very large amount of money one thing
  • 00:18:19
    that we're going to be interested in is
  • 00:18:21
    what we call GDP per capita GDP per
  • 00:18:25
    capita you can think about is just per
  • 00:18:27
    person GDP so if you were to take the
  • 00:18:29
    total income of the United States in
  • 00:18:33
    2015 seventeen point nine trillion and
  • 00:18:37
    divide that by the population so the
  • 00:18:40
    population in 2015 was about 321 million
  • 00:18:47
    that gives you a per capita or per
  • 00:18:51
    person GDP of about fifty six thousand
  • 00:18:54
    it's actually so per capita GDP is about
  • 00:19:02
    fifty five thousand eight hundred and
  • 00:19:06
    eighty two dollars and that's what we're
  • 00:19:13
    looking at here if we're looking at kind
  • 00:19:15
    of a rough measure of the average income
  • 00:19:18
    of people in the United States in 2015
  • 00:19:21
    it was approximately around fifty six
  • 00:19:24
    thousand now of course that doesn't mean
  • 00:19:27
    that everybody has an income of
  • 00:19:28
    fifty-six thousand dollars they're going
  • 00:19:30
    to be some people with incomes that are
  • 00:19:32
    much higher some people with incomes
  • 00:19:34
    that are much lower than that but it
  • 00:19:36
    does give you a place to start if you're
  • 00:19:38
    if you're thinking about the economic
  • 00:19:40
    health of an economy the
  • 00:19:42
    is a good place to start it doesn't tell
  • 00:19:45
    us everything it ignores distribution of
  • 00:19:49
    income it ignores several things that
  • 00:19:51
    we'll talk about later on in the video
  • 00:19:53
    but it does give you a piece of
  • 00:19:55
    information that we can start to figure
  • 00:19:57
    out what's happening to the economy if
  • 00:20:00
    we were to look at kind of how those
  • 00:20:02
    dollar amounts are split between these
  • 00:20:05
    components so this one's about fifty
  • 00:20:07
    five thousand eight hundred and eighty
  • 00:20:10
    two dollars total GDP if you look at
  • 00:20:14
    consumption consumption in that year was
  • 00:20:17
    about thirty-eight thousand two hundred
  • 00:20:20
    and eighteen dollars so you can see that
  • 00:20:22
    a vast majority of real GDP is made up
  • 00:20:26
    by household consumption investment
  • 00:20:29
    about nine thousand four hundred and two
  • 00:20:32
    dollars so that's about 17 percent this
  • 00:20:38
    is about 68 percent almost seventy
  • 00:20:41
    percent of GDP falls into consumption
  • 00:20:44
    not quite 20 percent 17 percent falls
  • 00:20:47
    into investment about eighteen percent
  • 00:20:50
    nine thousand nine hundred and nineteen
  • 00:20:56
    falls into government purchases so you
  • 00:20:59
    see that in terms of GDP about close to
  • 00:21:03
    ten thousand dollars of GDP about
  • 00:21:05
    eighteen percent of per capita GDP is
  • 00:21:09
    government spending per person and then
  • 00:21:13
    net exports is about negative one
  • 00:21:16
    thousand six hundred and fifty seven
  • 00:21:18
    dollars about negative three percent all
  • 00:21:20
    that means is that our imports were
  • 00:21:22
    bigger than our exports in 2015
  • 00:21:25
    don't let that negative sign bother you
  • 00:21:28
    there so that gives you an idea of kind
  • 00:21:35
    of what the per capita income is and you
  • 00:21:38
    know in the United States at least in
  • 00:21:39
    2015 what we need to do now is think
  • 00:21:43
    about how useful this is this is
  • 00:21:45
    actually what we call nominal GDP and it
  • 00:21:48
    turns out that nominal GDP is is kind of
  • 00:21:51
    limited in terms of how useful it is to
  • 00:21:55
    us what we're really going to
  • 00:21:56
    after is what we call real GDP so what
  • 00:21:59
    we need to do is clear this off and then
  • 00:22:01
    we'll talk about the difference between
  • 00:22:02
    real and nominal GDP let's think about
  • 00:22:06
    what happens if total spending by
  • 00:22:09
    households went up from one year to the
  • 00:22:12
    next so if we were to have an increase
  • 00:22:15
    in GDP an increase in GDP as measured by
  • 00:22:20
    household expenditure then that increase
  • 00:22:24
    in GDP could be coming from one of two
  • 00:22:26
    different places or maybe both it could
  • 00:22:29
    be that there's more goods and services
  • 00:22:32
    being produced so a higher output of
  • 00:22:34
    goods and services or it could be that
  • 00:22:44
    there's the same amount of goods and
  • 00:22:46
    services but that they're being bought
  • 00:22:47
    and sold at higher prices so it could be
  • 00:22:49
    an increase in the overall level of
  • 00:22:53
    prices we're interested in separating
  • 00:23:03
    out these two effects we want to know
  • 00:23:05
    how much of the increase in GDP is due
  • 00:23:08
    to an increase in output and how much of
  • 00:23:11
    it is due to an increase in the overall
  • 00:23:13
    level of prices so let me give you an
  • 00:23:16
    example of how this would work let's
  • 00:23:20
    suppose that I told you that you had
  • 00:23:24
    $100 to spend your income is $100 and
  • 00:23:29
    the price of an ice cream cone is $1
  • 00:23:33
    that means you could buy 100 ice cream
  • 00:23:37
    cones now let's suppose that we change
  • 00:23:40
    your income to $200 but we also change
  • 00:23:47
    the price of ice cream cones to $2 well
  • 00:23:52
    so now we've had a change in the level
  • 00:23:54
    of prices your income doubled the price
  • 00:23:56
    of an ice cream doubled but if we were
  • 00:23:59
    to think about what happened to your
  • 00:24:01
    real income if you've got $200 or not
  • 00:24:04
    and an ice cream cone costs $2 you can
  • 00:24:06
    still only by a hundred ice cream cones
  • 00:24:08
    so
  • 00:24:09
    turn in terms of the real amount of
  • 00:24:11
    goods and services that you can buy
  • 00:24:13
    nothing has changed for you so what we
  • 00:24:17
    want to do is be able to separate
  • 00:24:18
    separate out how much stuff is actually
  • 00:24:22
    being bought and sold versus the prices
  • 00:24:26
    at which that stuff is being bought and
  • 00:24:27
    sold that okay and the way that we're
  • 00:24:30
    going to do that is we're going to think
  • 00:24:32
    about what we call real GDP real GDP is
  • 00:24:40
    going to separate out the level of
  • 00:24:43
    prices real GDP is going to tell us how
  • 00:24:46
    the real amount of output of goods and
  • 00:24:48
    services is changing so we're going to
  • 00:24:53
    in order to calculate real GDP what
  • 00:24:55
    we're going to be doing is picking a
  • 00:24:57
    level of prices and then evaluating the
  • 00:25:00
    output from one year to the next at that
  • 00:25:02
    constant level of prices we're not going
  • 00:25:04
    to be allowing price to change and that
  • 00:25:07
    might not mean much to you right now but
  • 00:25:09
    I think here right now we'll do an
  • 00:25:11
    example and you'll see that it's
  • 00:25:13
    actually very very easy to understand so
  • 00:25:16
    let's do a numerical example let's
  • 00:25:20
    calculate nominal GDP then we'll
  • 00:25:22
    calculate real GDP and then we'll
  • 00:25:24
    calculate a measure of the overall level
  • 00:25:27
    of prices that we're going to call the
  • 00:25:29
    GDP deflator we'll get to that here in a
  • 00:25:31
    second but let's pretend in our economy
  • 00:25:34
    that we only have two goods if we were
  • 00:25:36
    calculating the GDP for the US economy
  • 00:25:39
    there are going to be hundreds of
  • 00:25:43
    thousands if not millions of different
  • 00:25:45
    goods and services that consumers buy in
  • 00:25:48
    a year we don't obviously we don't want
  • 00:25:51
    anything even remotely close to that so
  • 00:25:54
    we're going to pretend like there are
  • 00:25:55
    only two goods that can be bought in our
  • 00:25:58
    simple economy let's suppose they're
  • 00:25:59
    hotdogs and hamburgers and let me give
  • 00:26:02
    you some prices let's suppose that we
  • 00:26:05
    have let's talk about some years and I'm
  • 00:26:09
    going to use in terms of my years I'm
  • 00:26:11
    going to use past years we could think
  • 00:26:14
    about making an example where we have
  • 00:26:17
    current years but I want you to be
  • 00:26:19
    comfortable with the idea that we don't
  • 00:26:22
    need
  • 00:26:22
    years we can think about GDP for any
  • 00:26:25
    year in the past if we wanted so let's
  • 00:26:27
    just 2001 2002 2003 let's think about
  • 00:26:35
    the some prices so let's think actually
  • 00:26:38
    let's think about some quantities let's
  • 00:26:40
    think about the quantity of hot dogs
  • 00:26:44
    then we'll think about the price of hot
  • 00:26:46
    dogs I don't know if you can read that
  • 00:26:50
    on the video there let's think about the
  • 00:26:52
    quantity of hamburgers I'm just going to
  • 00:26:55
    put H there for hamburgers and the price
  • 00:26:58
    of hamburgers I guess I've got hot dogs
  • 00:27:06
    and hamburgers so let's call this HB for
  • 00:27:11
    hamburgers so let me give you some
  • 00:27:16
    numbers here for the quantities for each
  • 00:27:18
    year and the prices let's suppose that
  • 00:27:21
    in terms of quantities in 2001 let's
  • 00:27:24
    suppose that there were a hundred hot
  • 00:27:26
    dogs 2002 150 and 2003 200 that's how
  • 00:27:33
    many hot dogs were produced in those
  • 00:27:34
    three years let's suppose the prices $1
  • 00:27:39
    $2 and $3 for hamburgers let's have
  • 00:27:44
    let's say 50 in 2001 100 and then 150
  • 00:27:52
    and prices for hamburgers let's suppose
  • 00:27:57
    in 2001 two dollars then three then four
  • 00:28:04
    so this tells us the economic activity
  • 00:28:07
    in this economy in terms of the two
  • 00:28:10
    goods that they are produced in the
  • 00:28:12
    economy and it also tells us the prices
  • 00:28:15
    that they're being bought and sold for
  • 00:28:16
    so now let's calculate nominal GDP
  • 00:28:21
    nominal GDP remember is the market value
  • 00:28:24
    of all the final goods and services
  • 00:28:25
    produced within the country in a given
  • 00:28:28
    period of time typically a year so let's
  • 00:28:31
    think about GDP in 2001 there was a
  • 00:28:34
    hundred hotdogs each bought and
  • 00:28:36
    sold for $1 that's $100 worth of hotdogs
  • 00:28:39
    and then 50 hamburgers each bought and
  • 00:28:42
    sold for $2 each that's also a hundred
  • 00:28:45
    dollars worth of hamburgers so that's
  • 00:28:47
    $200 worth of goods and services let's
  • 00:28:50
    write that out so let's do nominal GDP
  • 00:28:56
    and let's do that for 2001 2002 2003 so
  • 00:29:07
    we've got 100 hotdogs times $1 plus 50
  • 00:29:13
    hamburgers times $2 that gives us a
  • 00:29:16
    nominal GDP in 2001 of 200 dollars 2002
  • 00:29:24
    we have a quantity of hotdogs 150 times
  • 00:29:28
    the price which is $2.00 plus 100 times
  • 00:29:32
    3 dollars that's $300 worth of hotdogs
  • 00:29:37
    $300 worth of hamburgers that's $600
  • 00:29:43
    2003 we've got 200 hotdogs times the
  • 00:29:46
    price which is 3 plus 150 hamburgers
  • 00:29:52
    times the price which is 4 that gives us
  • 00:29:55
    600 plus 600 that's 1200 dollars worth
  • 00:30:00
    of hot dogs and hamburgers in 2003 so if
  • 00:30:06
    we look at the difference between 2001
  • 00:30:08
    to 2002 we see that nominal GDP tripled
  • 00:30:13
    it went from 200 to $600
  • 00:30:16
    remember GDP is our measure of income so
  • 00:30:19
    it looks like income has gone up
  • 00:30:20
    dramatically and then from 2002 to 2003
  • 00:30:24
    income doubled again the problem with
  • 00:30:27
    this is that this is nominal GDP and
  • 00:30:29
    nominal GDP includes changes in output
  • 00:30:34
    which is certainly happening here but
  • 00:30:36
    also changes in prices which is also
  • 00:30:40
    happening the prices are going up so
  • 00:30:41
    what we want to do is we want to
  • 00:30:44
    calculate real GDP so let's think about
  • 00:30:47
    how we're going to calculate real GDP
  • 00:30:50
    real GDP is going to tell us how much is
  • 00:30:54
    output going up we want to eliminate the
  • 00:30:57
    fact that price is changing so the way
  • 00:30:59
    we're going to do this is we're going to
  • 00:31:01
    choose what's called a base year our
  • 00:31:04
    base year let's use for our example
  • 00:31:07
    let's use 2001 as our base year we'll
  • 00:31:12
    use the first year we don't have to we
  • 00:31:14
    could use 2002 or 2003 or we could use
  • 00:31:18
    some other year 1997 if we wanted to
  • 00:31:22
    what we're going to do is we're going to
  • 00:31:24
    evaluate the value of the hamburgers and
  • 00:31:28
    hotdogs at the prices that existed in
  • 00:31:31
    2001 so the only prices that we're going
  • 00:31:34
    to use will be the price of a hot dog in
  • 00:31:37
    2001 which is $1 and the price of a
  • 00:31:39
    hamburger in 2001 which is $2 so now
  • 00:31:43
    let's calculate real GDP for 2001 2002
  • 00:31:47
    and 2003 so we're going to use the
  • 00:31:53
    quantities from each year and the prices
  • 00:31:55
    from 2001 so in 2001 it's going to look
  • 00:32:00
    the same as it did up here it's going to
  • 00:32:02
    be 102 hotdogs times the price of hot
  • 00:32:05
    dogs in 2001 which is 1 plus the
  • 00:32:09
    quantity of hamburgers 50 times the
  • 00:32:11
    price in 2001 which is 2 that gives us
  • 00:32:15
    $200 in real income real GDP in 2001
  • 00:32:20
    notice that real GDP and nominal GDP are
  • 00:32:25
    both equal to each other
  • 00:32:26
    in 2001 they're always going to be equal
  • 00:32:30
    in your base year because you're using
  • 00:32:32
    the prices from that year now let's do
  • 00:32:35
    2002 so we're going to use the
  • 00:32:37
    quantities from 2002 but the prices from
  • 00:32:39
    2001 so that's going to be 150 hotdogs
  • 00:32:44
    times the price which is 1 plus 100
  • 00:32:48
    hamburgers times the price in 2001 which
  • 00:32:52
    is 2 that gives you 150 plus 200 that's
  • 00:32:56
    350 dollars that's what real GDP looks
  • 00:33:01
    like in 2002
  • 00:33:03
    Ellis do 2003 quantity in 2003 is 200
  • 00:33:09
    times the price in 2001 which is still 1
  • 00:33:12
    plus the quantity of hamburgers which is
  • 00:33:15
    150 times the price of hamburgers which
  • 00:33:18
    is 2 that's 200 plus 300 that gives us
  • 00:33:22
    $500 of real GDP in 2003 so you can see
  • 00:33:30
    that these numbers for real GDP show us
  • 00:33:33
    that real income is going up but not by
  • 00:33:36
    nearly as much as what nominal GDP made
  • 00:33:39
    it look like so in terms of the real
  • 00:33:42
    quantities of goods and services real
  • 00:33:45
    output of goods and services it is
  • 00:33:47
    rising from 2001 to 2002 and then to
  • 00:33:51
    2003 what we need to do now is think
  • 00:33:57
    about developing a way of measuring the
  • 00:34:00
    change in prices and we're going to do
  • 00:34:03
    that by using something that we call the
  • 00:34:06
    GDP deflator GDP deflator the GDP
  • 00:34:15
    deflator is something that we call a
  • 00:34:17
    price index and we're going to talk
  • 00:34:20
    about another price index that you've
  • 00:34:22
    probably heard about later on in this
  • 00:34:24
    class called the consumer price index
  • 00:34:26
    the CPI the CPI and the GDP deflator
  • 00:34:30
    essentially are doing the same thing
  • 00:34:33
    they do it slightly differently from
  • 00:34:34
    each other but GDP the GDP deflator is a
  • 00:34:39
    way of measuring how prices change from
  • 00:34:42
    one year to the next so here's how we're
  • 00:34:45
    going to calculate the GDP deflator let
  • 00:34:47
    me write the definition right down here
  • 00:34:49
    the GDP deflator looks like this it's
  • 00:34:51
    nominal GDP divided by real GDP
  • 00:35:04
    multiplied by 100 the GDP deflator is
  • 00:35:09
    nominal GDP divided by real GDP
  • 00:35:12
    multiplied by 100 so let's figure out
  • 00:35:18
    the GDP deflator for our three years so
  • 00:35:22
    let's do that right up here GDP deflator
  • 00:35:30
    2001 2002 2003 so in 2001 nominal GDP is
  • 00:35:39
    200 divided by real GDP in 2001 which is
  • 00:35:43
    also 200 multiplied by 100 that gives us
  • 00:35:47
    a deflator these cancel out may become 1
  • 00:35:50
    that gives us a GDP deflator of 100 the
  • 00:35:57
    GDP deflator is always going to be 100
  • 00:36:00
    in your base year ok so that's a good
  • 00:36:03
    way to just kind of double check that
  • 00:36:04
    you've made the calculation correctly in
  • 00:36:08
    2002 our nominal GDP was 600 divided by
  • 00:36:14
    our real GDP which is 350 we multiply by
  • 00:36:18
    a hundred that gives us a GDP deflator
  • 00:36:22
    of 171 and then in 2003 our nominal GDP
  • 00:36:29
    is 1200 divided by our real GDP of 500
  • 00:36:34
    multiplied by 100 that gives you a GDP
  • 00:36:38
    deflator of 240 so there's what our GDP
  • 00:36:43
    deflator looks like in each year what we
  • 00:36:47
    need to do is think about what the GDP
  • 00:36:50
    deflator tells us how do we interpret it
  • 00:36:53
    the GDP deflator is a price index let's
  • 00:36:57
    just write that up here it's a price
  • 00:36:58
    index and the way that you use a price
  • 00:37:04
    index is that it tells you how much
  • 00:37:07
    prices are changing okay so the GDP
  • 00:37:10
    deflator tells us what's happening to
  • 00:37:12
    the overall level of prices from one
  • 00:37:15
    year to the next the way that you
  • 00:37:18
    interpret the
  • 00:37:18
    this is if the GDP deflator goes from
  • 00:37:23
    100 to 171 so if we're thinking about
  • 00:37:26
    the change in prices from 2001 to 2002
  • 00:37:33
    it's telling us that prices changed by
  • 00:37:36
    71 percent there was a 71 percent
  • 00:37:39
    increase in price level from 2001 to
  • 00:37:43
    2002 if we thought about 2001 to 2003
  • 00:37:53
    then this tells us that there was a 140
  • 00:37:58
    percent increase in the price level from
  • 00:38:03
    2001 to 2003 so if you're starting with
  • 00:38:10
    the base year and moving to any other
  • 00:38:12
    year that you can just subtract the base
  • 00:38:15
    year number 100 from whatever number
  • 00:38:19
    you're comparing to 171 minus 100 would
  • 00:38:23
    be 71 that tells you you've got 71
  • 00:38:25
    percent inflation let's talk about how
  • 00:38:30
    to do it if we were going from 2002 to
  • 00:38:33
    2003 because now neither one of them are
  • 00:38:36
    100 let's talk for just a second about
  • 00:38:39
    calculating a percent change so a
  • 00:38:42
    percent change will come back and just
  • 00:38:46
    briefly review this in the video where
  • 00:38:50
    we talk about the CPI but a percent
  • 00:38:52
    change the way you calculate the percent
  • 00:38:56
    change in anything is to look at how
  • 00:38:58
    much it changed by how much it changed
  • 00:39:02
    that's your numerator and divided by the
  • 00:39:08
    starting point and then multiplied by
  • 00:39:14
    100
  • 00:39:18
    so let's do that for 2001 to 2002 okay
  • 00:39:23
    so if we had 2001 to 2002 our numerator
  • 00:39:31
    let's write it this way the percent
  • 00:39:33
    change is going to be how much it
  • 00:39:38
    changed by well it changed by 71 we
  • 00:39:43
    would take 171 minus 100 that's how much
  • 00:39:49
    it changed by we're gonna divide by the
  • 00:39:53
    starting point which is 100 and then we
  • 00:39:56
    multiply by 100 that gives you 71% so if
  • 00:40:01
    you calculate the percent change from
  • 00:40:04
    one seven from 100 to 171 and you use
  • 00:40:10
    the way the normal way of calculating a
  • 00:40:12
    percent change you get seventy one
  • 00:40:14
    percent so you could this is kind of a
  • 00:40:15
    long way as long as your first year is
  • 00:40:19
    the base year you can just use that
  • 00:40:21
    little trick of knowing that that's
  • 00:40:23
    going to be seventy one percent but if
  • 00:40:26
    we're going from 2002 to 2003 let's do
  • 00:40:30
    that one real quick 2002 to 2003 if we
  • 00:40:35
    calculate the percent change their
  • 00:40:38
    percent change then it's going to be two
  • 00:40:44
    hundred and forty minus one seventy one
  • 00:40:52
    we're going to divide by where we
  • 00:40:54
    started just one seventy one and
  • 00:40:56
    multiplied by a hundred and you can see
  • 00:41:02
    that that's not going to be equal to the
  • 00:41:04
    difference between 171 and 240 okay so
  • 00:41:09
    you have to be careful if you're if
  • 00:41:12
    you're comparing two years and one of
  • 00:41:14
    them is not the beta neither one of them
  • 00:41:16
    are the base year the first one's not
  • 00:41:18
    the base year base year then you have to
  • 00:41:19
    calculate your percent change if the
  • 00:41:22
    first year is the base year you can just
  • 00:41:24
    look at how much it changed by so that's
  • 00:41:27
    how we would interpret what the GDP
  • 00:41:30
    deflator tells us
  • 00:41:32
    telling us essentially the inflation
  • 00:41:34
    rate it's telling us how much the level
  • 00:41:36
    of prices has changed let's clear this
  • 00:41:41
    off and then we'll talk about another
  • 00:41:42
    way to think about this GDP deflator
  • 00:41:44
    I'll explain what the word GDP deflator
  • 00:41:48
    that phrase actually means so let's
  • 00:41:50
    clear this off and then we'll take a
  • 00:41:51
    look at that let's talk for just a
  • 00:41:54
    second about where the term GDP deflator
  • 00:41:56
    comes from let's look at the definition
  • 00:41:59
    so the GDP deflator is calculated by
  • 00:42:06
    taking nominal GDP dividing by real GDP
  • 00:42:12
    and then we've got that 100 out there
  • 00:42:15
    that's how you calculate the GDP
  • 00:42:18
    deflator well if I simply switch the
  • 00:42:21
    location of these two terms I can
  • 00:42:24
    rewrite this algebraically the same way
  • 00:42:27
    this way real GDP let's write that out
  • 00:42:30
    real GDP is equal to nominal GDP divided
  • 00:42:41
    by the GDP deflator multiplied by 100
  • 00:42:51
    so you can see that what the deflator
  • 00:42:54
    does if you've got nominal GDP and you
  • 00:42:58
    divide nominal GDP by that deflator and
  • 00:43:01
    then multiply by the hundred it it sucks
  • 00:43:04
    out the effect of changes in prices
  • 00:43:07
    the problem with nominal GDP is it's
  • 00:43:10
    inflated by changes in prices as well as
  • 00:43:13
    changes in quantity of output so the
  • 00:43:16
    deflator simply deflates nominal GDP
  • 00:43:19
    down to real GDP so hopefully that gives
  • 00:43:22
    you some idea of why we call it the
  • 00:43:24
    deflator if you start with nominal
  • 00:43:27
    divided by the deflator then what you're
  • 00:43:30
    left with is real GDP which is what
  • 00:43:32
    we're really interested in real GDP
  • 00:43:35
    we're really interested in how many
  • 00:43:37
    icecream cones we can buy it really
  • 00:43:40
    doesn't matter what our nominal income
  • 00:43:42
    is and the nominal price of an ice-cream
  • 00:43:45
    cone what we want to know is well at the
  • 00:43:47
    end of the day how many icecream cones
  • 00:43:48
    can we buy if you look at at real GDP
  • 00:43:54
    and how it's changed over time what you
  • 00:43:58
    tend to see that is that at least in the
  • 00:44:00
    u.s. since around say the mid sixties
  • 00:44:07
    since the mid 60s
  • 00:44:10
    we've had let's say somewhere around
  • 00:44:15
    three percent growth and what that
  • 00:44:24
    results in is that GDP has approximately
  • 00:44:28
    quadrupled since the mid 60s in the
  • 00:44:32
    United States in other words real
  • 00:44:34
    incomes have quadrupled within just a
  • 00:44:38
    few generations that's that's fairly
  • 00:44:40
    remarkable in terms of how much the
  • 00:44:43
    standard of living has risen over time
  • 00:44:47
    what we see is that growth is not
  • 00:44:53
    constant there are some years when it's
  • 00:44:55
    higher some years when it's lower some
  • 00:44:58
    years when it can turn negative so there
  • 00:45:03
    are years when we have expect
  • 00:45:04
    Anson's years when we have recessions
  • 00:45:08
    but if you look at kind of the average
  • 00:45:10
    level it's been somewhere in that
  • 00:45:12
    neighborhood one useful thing that at
  • 00:45:17
    the rule of 72 the rule of 72 simply
  • 00:45:24
    says that you can take 72 divide it by
  • 00:45:28
    the growth rate and that tells you
  • 00:45:31
    approximately the number of years before
  • 00:45:34
    a dollar amount will double so if we've
  • 00:45:37
    got three percent growth you can take 72
  • 00:45:40
    divided by three and that'll tell you
  • 00:45:43
    the number of years before real GDP is
  • 00:45:47
    going to double and you can see that if
  • 00:45:49
    we had one percent growth 72 divided by
  • 00:45:53
    1 gives you 72 at one percent growth it
  • 00:45:58
    would take 72 years before standards of
  • 00:46:01
    living doubled at two percent growth if
  • 00:46:06
    we took 72 divided by 2 that's what 36
  • 00:46:11
    then it would take only 36 years for
  • 00:46:14
    standards of living to double 3% growth
  • 00:46:17
    72 divided by 3 you can see that it's
  • 00:46:20
    taking fewer and fewer years for
  • 00:46:23
    standards of living to double here's
  • 00:46:25
    what that means the difference between
  • 00:46:28
    1% growth and 2% growth is not 1% the
  • 00:46:33
    difference between 1% growth and 2%
  • 00:46:36
    growth is a hundred percent growth more
  • 00:46:39
    growth at 2% then there isn't one
  • 00:46:42
    percent so small changes in the growth
  • 00:46:46
    rate have huge implications on how long
  • 00:46:50
    it takes for standards of living to
  • 00:46:51
    double so don't be fooled into thinking
  • 00:46:54
    that uh well okay you know if we have
  • 00:46:57
    some policy that's going to reduce the
  • 00:47:00
    growth rate of real GDP by by only 1%
  • 00:47:03
    that's not that big of a deal it's just
  • 00:47:04
    1% that's huge
  • 00:47:07
    ok and we'll talk about that later on
  • 00:47:08
    and in other videos we'll talk about
  • 00:47:10
    what influences the rate of growth of
  • 00:47:13
    GDP for now we'll leave that right there
  • 00:47:18
    let's talk about a definition so if you
  • 00:47:21
    have to I mentioned the word recession a
  • 00:47:24
    recession has a technical definition
  • 00:47:27
    it's two consecutive quarters of
  • 00:47:29
    declining GDP okay two consecutive
  • 00:47:33
    quarters six months it's typically a
  • 00:47:36
    comp accompanied by other things that we
  • 00:47:39
    don't like to have like rising
  • 00:47:41
    unemployment and increased bankruptcies
  • 00:47:45
    and falling profits for firms we'll talk
  • 00:47:49
    more about that later on let's finish
  • 00:47:55
    this up by talking about things that are
  • 00:47:58
    ignored by GDP so GDP is a good place to
  • 00:48:02
    start and there are lots of people that
  • 00:48:11
    will criticize economists for focusing
  • 00:48:13
    on GDP and maybe some of that criticism
  • 00:48:17
    is warranted but economists will always
  • 00:48:20
    point out that's not by any means the
  • 00:48:25
    the full story I mean their GDP is
  • 00:48:28
    designed to be a measure of the income
  • 00:48:31
    of everybody in the economy but that
  • 00:48:33
    doesn't mean that that's all that an
  • 00:48:35
    economist would look at to gauge the
  • 00:48:37
    health of an economy so let's talk about
  • 00:48:40
    some of the things that are ignored by
  • 00:48:42
    GDP it ignores a whole variety of things
  • 00:48:45
    that it's just simply not designed to
  • 00:48:47
    measure so it ignores things like the
  • 00:48:50
    quality of education so if we're
  • 00:48:56
    thinking about looking at GDP of an
  • 00:48:59
    economy and GDP is high but the quality
  • 00:49:02
    of the education system is low and
  • 00:49:04
    that's something we would need to take
  • 00:49:06
    into consideration it ignores the the
  • 00:49:10
    health of people say specifically health
  • 00:49:13
    of children so we would never advocate
  • 00:49:19
    just focusing on increasing real GDP at
  • 00:49:22
    the expense of the health of people in
  • 00:49:24
    the economy GDP all other things we
  • 00:49:29
    would rather have GDP be higher
  • 00:49:31
    then lower all other things equal but
  • 00:49:35
    that's not saying that doesn't mean that
  • 00:49:38
    doesn't imply that economists don't care
  • 00:49:40
    about things like this GDP simply does
  • 00:49:44
    not take that into consideration it
  • 00:49:45
    doesn't have anything to tell us about
  • 00:49:48
    say the quality of the culture or say
  • 00:49:57
    the quality of the environment so if we
  • 00:50:10
    were we would not advocate for policies
  • 00:50:12
    that the increased GDP at the expense of
  • 00:50:16
    a lot of environmental degradation it
  • 00:50:22
    ignores let's say equity it's not
  • 00:50:28
    designed to measure that so when we
  • 00:50:29
    looked at GDP per capita and it was
  • 00:50:32
    roughly 56,000 dollars in 2015 that
  • 00:50:36
    doesn't tell us anything about who has
  • 00:50:38
    big shares of the pie and who has a
  • 00:50:41
    small share of the pie so that's the
  • 00:50:43
    discussion that we can have we need to
  • 00:50:45
    think about that and think about
  • 00:50:47
    policies that might help people that for
  • 00:50:49
    whatever reason have a small share of
  • 00:50:51
    the pie it doesn't tell us anything
  • 00:50:54
    about activity that doesn't take place
  • 00:50:56
    in a market activity outside of a market
  • 00:51:02
    let's just say outside of markets the
  • 00:51:06
    one that I'm thinking of in particular
  • 00:51:07
    here would be same activity like raising
  • 00:51:13
    a household raising kids it would get
  • 00:51:16
    counted if kids are going to daycare but
  • 00:51:18
    let's suppose you have a parent that's
  • 00:51:20
    stayin at home raising kids that is a
  • 00:51:23
    very productive thing to be doing it's
  • 00:51:26
    probably I would argue one of the more
  • 00:51:28
    important things that that people do is
  • 00:51:31
    to raise their kids and yet because that
  • 00:51:34
    takes place outside of a market that
  • 00:51:36
    kind of activity is ignored by GDP and
  • 00:51:39
    so we just have to keep that in mind we
  • 00:51:42
    can look at the number that we get when
  • 00:51:44
    we
  • 00:51:45
    per capita GDP but we always have to
  • 00:51:48
    remind ourselves that it's not telling
  • 00:51:51
    us the full picture it's it's telling us
  • 00:51:53
    one little piece of the picture and we
  • 00:51:55
    have to look at a whole lot of other
  • 00:51:57
    things before we start making a judgment
  • 00:52:00
    about whether or not the economy is in
  • 00:52:02
    good shape or bad shape but that's
  • 00:52:04
    really what we're doing in this class is
  • 00:52:05
    we're thinking about different ways of
  • 00:52:09
    looking at what what are the things that
  • 00:52:10
    we should look at if we're trying to
  • 00:52:13
    figure out the health of the economy and
  • 00:52:15
    this is just the first piece of that
  • 00:52:17
    puzzle we'll talk about other pieces in
  • 00:52:19
    later videos I'll see you then
  • 00:52:29
    you
الوسوم
  • GDP
  • economic health
  • nominal GDP
  • real GDP
  • expenditure
  • income
  • market value
  • government spending
  • net exports
  • components of GDP