00:00:17
I expect that there will be many fun
00:00:19
lectures in the sense that we're going
00:00:20
to have you know we're going to be
00:00:21
discussing a little more exactly at the
00:00:24
right time in which that issue is an is
00:00:26
an important issue at least as D in the
00:00:30
newspapers and you know we live in we
00:00:32
are going through a very interesting
00:00:34
time for microeconomist inflation is
00:00:37
unusually high something needs to be
00:00:39
done about that er um we still have
00:00:43
problems on the supply side of the
00:00:45
economy as a result of CO as a result of
00:00:48
the slow reopening of
00:00:50
China um we have a war going on which is
00:00:54
affecting also the price of energy and
00:00:56
it's particularly impacting Europe and
00:01:00
all these things are the situation is
00:01:01
very fluid all of them can change at at
00:01:04
any moment and uh and policy makers are
00:01:08
s therefore paying very close attention
00:01:10
to all these things it's not a normal
00:01:12
time if you're a policy maker
00:01:14
macroeconomist microeconomist policy
00:01:17
maker uh you you are not sleeping a lot
00:01:20
on these days and so so I expect that we
00:01:23
will have plenty of time to discuss
00:01:26
interesting things and analyze them um
00:01:30
at a slightly higher level than you can
00:01:32
do at this moment now I also told you in
00:01:36
the previous in the introduction that
00:01:38
that this particular
00:01:40
lecture is not going to be of that kind
00:01:44
you know it's going to be very boring in
00:01:46
the sense that you know we need to start
00:01:48
with definitions and and and I don't
00:01:50
know who likes definitions I don't it's
00:01:52
very boring now there is an interesting
00:01:56
or a curious side of the definitions
00:01:58
we're going to discuss which which is
00:02:00
that if you were taking 1401
00:02:03
microeconomics many of the concepts
00:02:05
we're going to describe require no
00:02:06
definition they're obvious I mean if you
00:02:08
I ask you for output of a factory that
00:02:10
produces cars it's pretty obvious that
00:02:12
it's a number of cars if I ask you for
00:02:14
the prices of those cars is pretty
00:02:16
obvious what the price of a car is not
00:02:19
so for macro because if I ask you what
00:02:21
is the output of the US economy well
00:02:24
there's millions of goods and services
00:02:26
are produced at the same time so so what
00:02:28
do we mean by output a single measure of
00:02:31
output or if I ask you about the price
00:02:33
level or the inflation the rate at which
00:02:35
that price level is changing well what
00:02:37
are we talking about it's very easy to
00:02:39
see where the price of a car is going up
00:02:41
but if we're mixing sort of millions of
00:02:44
different goods and services then it's a
00:02:47
little harder and that's the reason we
00:02:48
need this lecture because it's it's a
00:02:50
little harder than 1401 and we need to
00:02:52
Define basic things but they have a
00:02:54
trick because you're suming apples and
00:02:56
oranges not only apples and oranges
00:02:59
apples oranges health services financial
00:03:02
services all of them in in one piece and
00:03:05
so so it's a little trickier and that's
00:03:07
the reason we need this boring lecture
00:03:09
we need to go through
00:03:11
that slightly trickier definition of
00:03:14
output prices and so
00:03:19
on
00:03:21
ER okay so let me let me start with the
00:03:24
most basic thing aggregate output at the
00:03:27
end of the day when where the econom is
00:03:28
in a recession or not and so we don't
00:03:31
like it or we do like it depends on what
00:03:34
is happening to Output is output growing
00:03:36
at the pace it used to grow is it
00:03:38
growing less or it's declining well
00:03:41
that's very important for macro and to
00:03:44
understand the health of an economy the
00:03:45
microeconomic health of an economy but
00:03:47
we need to start by defining what we
00:03:50
mean by
00:03:51
output and because it's a tricky thing
00:03:54
to do when you're adding so many apples
00:03:56
oranges Financial Services ER
00:03:59
entertainment and lots of things that
00:04:02
are very different H it wasn't there we
00:04:05
didn't have a good way of doing that in
00:04:07
fact the national accounts as we know
00:04:09
them in the US is something that we have
00:04:12
since the post-war period in in the late
00:04:14
40s that we develop the technique the
00:04:17
approach to come up with a measure of
00:04:19
our output before that we had measures
00:04:22
proxies you know industrial production
00:04:24
is very high I meaning we're producing
00:04:26
lots of cars stuff like that and
00:04:27
somebody but something systematic like
00:04:30
we have today is a pretty recent uh
00:04:33
thing okay we call that NEPA the
00:04:36
national income and product
00:04:39
account income and product that's going
00:04:42
to be very important for macro as you'll
00:04:44
see in a minute um so the main measure
00:04:47
of aggregate output is what we call
00:04:49
gross domestic product or simply GDP you
00:04:53
hear GDP that means output of an economy
00:04:57
why is gross and not net you're not
00:04:58
going to worry about that in this course
00:05:01
okay but that's you hear
00:05:03
GDP most microeconomist wouldn't say
00:05:06
output they would say GDP it's very
00:05:07
short it's efficient and so on well
00:05:09
that's what it means it's the output of
00:05:11
an economy but how do we Define it as I
00:05:14
said before it's much harder than when
00:05:16
you have an individual
00:05:17
good by the way I will be most of the
00:05:21
time I will say
00:05:22
Goods but really is goods and services
00:05:26
but it's very long to say goods and
00:05:28
services no so whenever I say Goods I'm
00:05:31
not trying to play any trick on you I
00:05:33
really mean goods and services I just
00:05:35
mean lazy okay and most people are lazy
00:05:38
that way okay now what is the difference
00:05:40
between goods and services you you're
00:05:42
not going to worry a lot about that in
00:05:43
this no you're not going to worry at all
00:05:45
about that in this course but just to
00:05:48
get a sense goods are things that you
00:05:50
know that are tangible services are
00:05:52
things that are not that tangible there
00:05:55
are benefits that you receive from the
00:05:56
task that someone else operates on you
00:05:58
so you go to the to you know the medical
00:06:02
center you don't come up with a piece of
00:06:04
a machine to well they may lend you
00:06:07
something but but you don't come out
00:06:09
with an objective you come out with the
00:06:11
service provided by a doctor to you okay
00:06:14
and the same happens if you go to a bank
00:06:16
you don't come with a ATM with you what
00:06:19
you come up with is the service of
00:06:21
having done a transaction or deposit or
00:06:24
go on a mortgage or something like that
00:06:25
it's a service if you go to a
00:06:28
restaurant again you don't what you can
00:06:31
what you have is an experience it's a
00:06:34
people provided an experience to you
00:06:36
things are a little tricky because if
00:06:37
you do a take out well is that an
00:06:39
experience or is really the goods so so
00:06:43
if you get into those details which
00:06:44
you're not going to get it gets to be
00:06:46
tricky but but but just to get a
00:06:49
sense on average a consumer in the US
00:06:53
two third of the consumption is in
00:06:56
services not in Goods it's not sort of
00:06:58
the banana and so on that you buy it's a
00:07:01
lot of the financial services health
00:07:02
services and entertainment and things
00:07:05
like that traveling that's what you
00:07:07
spend most of your time having clarified
00:07:11
that you can of forget that from now on
00:07:14
I'm going to say Goods occasionally may
00:07:16
say goods and services but I always mean
00:07:18
the same okay good so um so how do we
00:07:24
measure these things so well there there
00:07:25
are different ways ER of of of doing
00:07:28
this something happened to my slide
00:07:32
there okay there we
00:07:35
are um so suppose that you have a an
00:07:39
economy that is very simple I don't need
00:07:41
to tell you how simple this economy is
00:07:43
it has just two
00:07:45
firms okay suppose we have an economy
00:07:48
that's very simple has two firms one
00:07:51
firm produces a steel and the other one
00:07:53
produces cars and the company that
00:07:56
produces cars buys all the steel from
00:07:58
the company no body you as a consumer
00:08:00
don't buy you don't buy steel directly
00:08:03
the car company buys a steel uses to
00:08:05
produce a car and you buy the car okay
00:08:08
so that's our simple economy and that's
00:08:10
those are the the accounts of the of the
00:08:12
simple economy so there you have company
00:08:16
one has a revenue from sales it sells
00:08:20
$100 okay so price of steel times steel
00:08:24
is
00:08:25
$100 the second company H uses B is Ste
00:08:30
uses workers and sells
00:08:34
$200 no so the question I ask you the
00:08:37
first question I ask you here is well
00:08:38
what is the GDP of this economy here you
00:08:40
have an economy that has two goods
00:08:42
needless to say a real economy is a lot
00:08:43
more complicated than this but you have
00:08:46
two companies and I ask you what is
00:08:49
GDP so the obvious things that you could
00:08:52
come up with is well I Su all the
00:08:54
revenues okay so that's the obvious one
00:08:57
the total GDP of these economies is 300
00:09:00
that's a sensible
00:09:02
answer okay at least at this moment I
00:09:04
would accept that as a sensible answer
00:09:06
in the quiz I wouldn't but here it's a
00:09:09
sensible answer I mean well you ask me
00:09:10
for what is the total output of that
00:09:12
economy I sum up all the revenues on
00:09:15
sales and that's
00:09:19
300 okay so so um is it
00:09:24
300 well or is it 200 I mean that's
00:09:28
another you says well look only the
00:09:31
final goods perhaps should count because
00:09:34
you know this is the only thing that you
00:09:37
as a consumer will ever see this part
00:09:40
not that those are two sensible answers
00:09:42
and what I'll show you in three
00:09:44
different ways is that the right answer
00:09:47
is 200 for that economy okay not 300 the
00:09:51
right answer is
00:09:53
200 so method
00:09:56
one H and all these methods are used and
00:09:59
they use to check each other H to
00:10:02
compute H
00:10:04
GDP uh so method one is what I said here
00:10:08
is final goods you said
00:10:10
GDP is the value of the final goods and
00:10:14
services producing the economy during a
00:10:17
given period of time notice that GDP is
00:10:19
a concept of a flow it's something you
00:10:21
produce in a year okay that's the reason
00:10:22
you say GDP of the US in 2022 was you
00:10:27
know 23 23 trillion dollar is in a year
00:10:31
okay it's a it's a period of time okay
00:10:34
so so that's one definition and one way
00:10:38
of of of er
00:10:42
of making sense of this definition is
00:10:45
imagine that I give you the same economy
00:10:48
with the same two factories and now all
00:10:50
of a sudden I tell you you know what I'm
00:10:52
going to merge the two companies so
00:10:54
company the car company will buy the
00:10:56
steel meal or whatever
00:10:59
well if I now put together those two
00:11:01
accounts now I never see the steel
00:11:03
because it that's all happening inside
00:11:04
the the factory and it's still the case
00:11:07
that the economy would be producing 200
00:11:09
Cars and all that you would see is 200
00:11:12
no because I would put this thing
00:11:14
together there was a steel that this
00:11:16
company had purchased from that but now
00:11:17
it's all inside okay so so if I put them
00:11:21
together then that steel there doesn't
00:11:23
appear because it's all produced inhouse
00:11:26
and now GDP would be 200 well it makes
00:11:28
no sense
00:11:29
that just because I change the ownership
00:11:32
structure of the companies that your GDP
00:11:34
changes collapses from 300 to 200 if I
00:11:38
only measuring final goods though I
00:11:39
don't have that problem it's still 200
00:11:42
doesn't matter that I have the merge
00:11:44
slice and LIC in 20 or whatever so
00:11:46
that's that tells you that that's we're
00:11:48
going the right way here because you
00:11:49
know it's it's a very robust answer that
00:11:53
is you don't count intermediate output
00:11:54
you only count the final goods which are
00:11:56
the things that the consumer will buy
00:11:59
buy the firms will buy for investment
00:12:01
and things of that kind that foreigners
00:12:03
will
00:12:05
buy alternative method is GDP is the sum
00:12:09
of value
00:12:11
added in the economy during a given
00:12:13
period of time what is value added the
00:12:17
difference between final the final goods
00:12:19
produced by a company and the
00:12:21
intermediate inputs it purchased to
00:12:23
produce those
00:12:24
goods okay so what is the value added of
00:12:28
the steel company here
00:12:30
it's the answer is there but you know
00:12:33
but what is the value added it's 100 how
00:12:36
do I know it's 100 well because it's not
00:12:38
buying any intermediate input and the
00:12:40
revenue is
00:12:41
100 okay so that's the reason I get 100
00:12:45
there okay 100 there's no intermediate
00:12:47
input what is the value added of the car
00:12:50
company well the revenue on sales is 200
00:12:53
but it purchase 100 in intermediate
00:12:55
inputs so the value is 200 minus 100 the
00:12:59
value out of this company is 100 100
00:13:01
plus 100 I get my 200 again
00:13:04
yep
00:13:07
consider wages to be in really good no
00:13:11
that's those are not Goods those are
00:13:12
factors of
00:13:14
production okay so this and the same
00:13:17
there are machines in that factory that
00:13:19
are helping you produce things that's a
00:13:21
service of the machine it's Capital
00:13:23
that's not an intermediate input an
00:13:24
intermediate input is another good or
00:13:27
service that you buy for the the purpose
00:13:29
of producing that that good
00:13:33
okay so workers is not workers are
00:13:36
working inside your company and so on if
00:13:38
the work was if the work was produced
00:13:41
was outsourced and you had another
00:13:43
company that produces something that you
00:13:45
use from those workers that would be an
00:13:47
intermediate input but you would have to
00:13:48
count the value out of the other of the
00:13:50
companies you have outsourced too you
00:13:53
see so that's method two two and you see
00:13:56
we get exactly at 200 those two method
00:13:59
methods are called production methods
00:14:00
there are different ways of measuring
00:14:02
the production of the economy the third
00:14:04
method and the last one is an income
00:14:08
method which means look all that is
00:14:12
produced has to be earned by someone the
00:14:15
workers the owners of capital somebody
00:14:17
has to own that if the firms sell
00:14:20
collectively $200 those $200 have to be
00:14:23
allocated to someone someone means
00:14:26
workers the owners of capital of the
00:14:28
first Ms or in realistic economies the
00:14:32
government you pay taxes and things of
00:14:33
that kind okay we're not going to worry
00:14:35
about the government for a
00:14:37
while so that's an alternative method
00:14:39
it's method three you just sum the
00:14:42
incomes so who are the factors of
00:14:44
productions here related to your
00:14:45
question in this there is no government
00:14:47
here no taxes so we have only workers
00:14:50
and profits you the capital the owners
00:14:52
of the Company wages is 80 + 70 is
00:14:57
150 profits is 20 + 30 50 150 in wages
00:15:02
plus 50 in profit gives you back your
00:15:05
200 okay so those are the three ways we
00:15:07
have of measuring these things and you
00:15:09
see they give you exactly the same
00:15:10
result now there is
00:15:13
something as I as I from the
00:15:15
construction of national account there
00:15:16
is something interesting in what I just
00:15:18
said which is look I can that production
00:15:22
is the same as
00:15:23
income that's going to be very important
00:15:26
for macro very important for macro
00:15:29
and it's totally unimportant for
00:15:32
micro when you're looking at a company
00:15:34
for example in micro and you're looking
00:15:36
at a car company by
00:15:38
itself it is true that you know the
00:15:41
output of that company becomes income
00:15:44
part for the owners of the company and
00:15:46
part for the workers but that income
00:15:49
needs not be spent in cars can spend in
00:15:53
food entertainment and whatever not so
00:15:56
in
00:15:57
macro because what else you going to
00:15:59
spend it to than in the same good that
00:16:01
you're producing in the aggregate good
00:16:04
so it's very interesting that's a very
00:16:06
distinctive feature of micro that is not
00:16:08
present in micro is that that income has
00:16:10
to be spent in the same Goods if the
00:16:12
econom is closed later on we're going to
00:16:14
open the economy to the rest of the
00:16:15
world and then you get you buy some
00:16:16
Chinese goods and blah blah blah but if
00:16:18
you keep it close hey you are not going
00:16:21
to buy cars that's what you work on but
00:16:23
you're going to have to buy it in the
00:16:24
single good of the
00:16:26
economy which is the sum of all the
00:16:28
goods that we we consume an average
00:16:30
that's going to be very
00:16:32
important anyways this time is this
00:16:35
stuff move in the right direction okay
00:16:37
so that's that's that's that now you
00:16:39
know what GDP is and the different ways
00:16:41
of measuring you're going to have to
00:16:44
remember that
00:16:45
for for p set one and for quiz one and
00:16:49
you might as well forget it for the
00:16:51
future it's good that you understand the
00:16:52
concept but it's different ways of
00:16:53
constructing is not very
00:16:55
important second thing we need to worry
00:16:58
about
00:16:59
is that whenever you're thinking about
00:17:01
the output of an economy you're really
00:17:03
trying to think about the real output
00:17:05
meaning number of cars and number of
00:17:06
machines and so on but you have
00:17:09
inflation for example then prices of
00:17:11
these things are growing and so the
00:17:13
total revenue on sales is growing but
00:17:16
they don't mean the same and we want to
00:17:18
certainly separate these two things and
00:17:20
for that reason we have a concept which
00:17:22
is called nominal GDP and another one
00:17:25
which is called real GDP nominal GDP is
00:17:28
the simplest thing on Earth is
00:17:30
essentially you know we had only one
00:17:32
final goods company there which was cars
00:17:34
but mind you have cars refrigerators
00:17:36
many many things nominal GDP simply you
00:17:39
sum all the final goods and you multiply
00:17:41
them by the the current price and that
00:17:44
gives you the dollar GDP that you have I
00:17:46
don't know what it is in the US today
00:17:48
you could check it but it's $24
00:17:51
trillion a so that's it P * Q you know
00:17:55
prices times quantity and you sum across
00:17:57
all the final goods
00:17:59
that's we have to that's one way of
00:18:01
calculating thing that's nominal GDP but
00:18:04
again what we really care about is we're
00:18:06
going to get a lot about later on is how
00:18:09
that econom is doing over time is it
00:18:10
growing is it not growing nominal GDP
00:18:13
can grow for two different reasons can
00:18:15
grow because the economy is really
00:18:18
becoming more productive is producing
00:18:20
more Goods or because prices are going
00:18:23
up now at this moment real nominal GDP
00:18:26
is growing very fast in the US despite
00:18:28
the fact that we may have recession this
00:18:29
year we don't know but nobody has any
00:18:32
doubt that nominal GDP will grow because
00:18:34
we have lots of inflation and so you
00:18:36
want to separate these two things and
00:18:38
the thing that removes the inflation
00:18:40
component is what we call real
00:18:43
GDP and real GDP if you hear the word
00:18:47
only GDP and and that was produced by
00:18:50
somebody understand what he's talking
00:18:51
about GDP really means real GDP okay if
00:18:54
you just hear GDP people are try is
00:18:57
trying to say the output of the economy
00:18:59
well that's real GDP and the real GDP is
00:19:03
computed many tricks but but essentially
00:19:07
what you do is you consume you you you
00:19:11
you also sum across all the
00:19:13
goods you also Su across the goods but
00:19:16
you use constant prices not the prices
00:19:19
of that point in time
00:19:21
necessarily okay so I'm going to give
00:19:23
you a very concrete example but before
00:19:25
doing that for this course we're going
00:19:27
to call nominal GDP and all nominal
00:19:30
variables are going to have that's what
00:19:31
the textbook does they're going to have
00:19:33
a dollar sign in front so that's our
00:19:35
measure that's nominal GDP GDP is going
00:19:38
to be Y without the dollar that's real
00:19:40
GDP okay for the first part of the
00:19:43
course up to quiz one we're we're going
00:19:46
very we're going to worry very little
00:19:47
about nominal things because we want to
00:19:49
have prices completely fixed but but you
00:19:51
still need to know the concept and
00:19:53
that's real GDP so now let me give you
00:20:01
an example so suppose you have this this
00:20:05
this the simple economy we had before
00:20:07
we're just going to look at final goods
00:20:09
because that's what we need to look
00:20:11
at to con to construct GDP and so this
00:20:15
economy produces cars and supposedly
00:20:17
produces 10 cars in 2011 12 cars in
00:20:21
2012 and 13 cars in in 2013 but suppos
00:20:26
the price of a car is what you see there
00:20:28
20,000 24,000 and
00:20:30
26,000 nominal GDP is simply the
00:20:33
product you know of this times that that
00:20:36
gives you
00:20:37
$200,000 12 cars times $25,000 gives you
00:20:41
288 and so on that's nominal
00:20:43
GDP real
00:20:45
GDP you have to
00:20:48
pick which price you want to use but
00:20:51
only use one and don't vary it over time
00:20:54
okay so in this particular case we pick
00:20:57
2012
00:20:59
okay so that means when you say GD real
00:21:01
GDP at 20 2012 2012 base 2012 or at 2012
00:21:06
prices means that you're using the
00:21:08
prices of 2012 you don't bury that you
00:21:11
let quantities change over time but the
00:21:13
prices remain fixed so in this case real
00:21:16
GDP at
00:21:17
$22 is you know is 10 cars times 25,000
00:21:22
that give you 240,000
00:21:25
12 cars time 24,000 28
00:21:29
this is interesting for this year
00:21:30
nominal GDP is the same as real GDP why
00:21:32
is
00:21:34
that it's an
00:21:40
accident exactly we're using that's a
00:21:43
base year so that's nominal GDP will
00:21:45
always be equal to real GDP at the base
00:21:48
year that's the Year we're picking as
00:21:50
the base know because those are the
00:21:51
prices we're
00:21:53
using I what about 2013 well is is not
00:21:57
26,000 * 13 is 24, 1013 so we get 312
00:22:02
and it's obvious here that real GDP is
00:22:04
growing less than nominal GDP why is
00:22:07
that well because this economy has
00:22:09
inflation prices are rising over time
00:22:12
and we want to remove that when we want
00:22:13
to look at the real concept the real
00:22:16
concept removes the price
00:22:19
effect there are times in which you
00:22:22
don't want to remove all that price
00:22:24
effect and it happens a lot for example
00:22:26
in computers because sometimes the
00:22:28
increase in the price of the computer is
00:22:30
simply because the computer is better
00:22:32
and and you want to correct for quality
00:22:33
and so on but again that's not something
00:22:35
you need to worry about in this course
00:22:42
okay maybe some of you deciding the pace
00:22:44
which you want me to move I'm really
00:22:46
puzzled by this stuff here this is this
00:22:50
is from the book and you see what
00:22:52
happened in in the US with nominal and
00:22:55
real GDP with base year 2012 so as I
00:22:58
said before these two curves one is
00:23:00
nominal GDP the red line the blue line
00:23:03
is real GDP we're using Bas year 2012 so
00:23:06
at that point they have to be the same
00:23:09
and what you see very very clearly there
00:23:12
is that a the Blue Line real GDP is
00:23:17
flatter than the red line why is
00:23:20
that why is it
00:23:27
yeah is inflation see yeah by the way I
00:23:29
do have a reference for you so ask me
00:23:31
after the okay
00:23:33
good um anyway so yeah in the US between
00:23:37
1916 and 2018 real nominal GDP increased
00:23:40
by a factor of 38 while real GDP by a
00:23:43
factor of 5.7 big difference so so you
00:23:45
better be careful when when you look at
00:23:47
GDP that you are removing inflation
00:23:49
especially in I mean if you were to look
00:23:51
in
00:23:52
Argentina these guys have had a
00:23:53
recession a chronic recession for a long
00:23:55
time big recessions but nominal GDP is
00:23:58
explo clothing because they have 10,000%
00:24:00
inflation so so so it makes a big
00:24:05
difference especially over
00:24:09
time this is just so you get the picture
00:24:11
the complete picture for the US this is
00:24:13
a GDP growth in the US since we have
00:24:16
national accounts okay and some
00:24:19
noticeable things well again
00:24:21
recessions this was a big recession
00:24:23
remember we call this the Great
00:24:25
Recession big recession and well this is
00:24:29
covid and then this is 2020 and then
00:24:32
they bounce back in 2021 when we reopen
00:24:34
the economy big growth but that's very
00:24:36
anomalous I mean that's a very weird
00:24:38
shock okay but that's a you see these
00:24:41
are all the shaded areas are
00:24:43
recessions recessions are defined in a
00:24:46
slightly more complicated way than that
00:24:48
but one sort of er popular way of
00:24:52
describing ression is as episode where
00:24:55
you have two consecutive quarters of
00:24:57
negative inflation that's not the formal
00:24:59
definition of res but it's pretty close
00:25:01
okay and so so that's that's what you
00:25:05
have
00:25:06
there another concept is an employment
00:25:10
rate the unemployment rate so that's GDP
00:25:13
and we're going to the in the first part
00:25:14
of the course we want to worry a lot
00:25:16
about that we're going to build a model
00:25:18
on how to find equilibrium H GDP okay
00:25:22
and we're going to see what happens with
00:25:23
fiscal policy with monetary policy how
00:25:25
how does equilibrium GDP macroeconomic
00:25:28
EIC output changes with different forms
00:25:31
of policies or when consumers get scared
00:25:33
or stuff like that
00:25:38
okay what about the unemployment rate
00:25:40
the unemployment rate is not something
00:25:41
we want to worry a lot about until the
00:25:44
second part of the course after quiz one
00:25:46
but I still I want to get over with
00:25:48
these
00:25:48
definitions so what is employment is a
00:25:51
number of people who have a job that's
00:25:53
easy unemployment is slightly less easy
00:25:57
because it's first of all obviously to
00:25:59
be an employee you don't have to have a
00:26:00
you cannot have a job so but it's not
00:26:03
enough that you don't have a
00:26:06
job is an
00:26:08
unemployed person is somebody that
00:26:10
doesn't have a job and is looking for
00:26:13
one
00:26:16
okay not all unemployed people look for
00:26:18
your job not all non-employed people are
00:26:21
looking for
00:26:22
jobs okay so un to be unemployed you
00:26:26
need to not have a job and be looking
00:26:29
for one the labor force what we call the
00:26:32
labor force is the sum of those two
00:26:34
groups the employed and the unemployed
00:26:37
that would like to get a
00:26:39
job
00:26:41
okay the unemployment rate which is
00:26:44
something I showed you in the previous
00:26:45
lecture is just a ratio of these two
00:26:48
concepts the unemployed over the labor
00:26:50
force notice over the labor force not
00:26:53
population the labor force which is a
00:26:55
sum of the employed and those that are
00:26:58
unemployed that do not have a job and
00:27:01
are looking for a job
00:27:05
okay how how is an employment measure in
00:27:09
the US is mostly a survey and I have the
00:27:11
the the info there it's called the CPS
00:27:15
the current population survey that
00:27:17
consults lots of households and they ask
00:27:20
them about the employment status whether
00:27:21
they have been looking for a job over
00:27:23
the last two weeks or not and so on and
00:27:25
that's the way we come up with with the
00:27:27
number as as I said before H those that
00:27:30
do not have a job but are not looking
00:27:32
for a job they haven't been looking for
00:27:33
a job in the last two weeks are called
00:27:36
not in the labor force that's that's
00:27:38
what we say now these concepts are
00:27:41
between an employed and not in the labor
00:27:44
force is it's not not that clear we we
00:27:47
we look at the employment rate but we
00:27:49
also tend to look at those people as
00:27:50
well because many people are simply
00:27:52
discouraged they would like to get a job
00:27:54
but they have been looking for a while
00:27:56
and they haven't found it and it it
00:27:58
happens that there is a lot more
00:27:59
discouraged workers during recessions
00:28:03
and when you're having a big recession
00:28:05
it's very difficult to find a job so
00:28:06
it's very easy to get discourage and so
00:28:09
that's the reason we look at broader
00:28:10
measures of non-employment than the
00:28:12
typical unemployment rate because a lot
00:28:15
of
00:28:15
those not in the labor force people that
00:28:18
do not have a job and are not looking
00:28:19
for a job are really discouraged they
00:28:21
just give up after a while
00:28:24
okay the participation rate and that's a
00:28:27
very important concept something you
00:28:29
would have ignored most of the time is
00:28:31
very critical at this moment the
00:28:33
participation rate is the ratio of the
00:28:35
labor force to the total population of
00:28:39
working age and you exclude people you
00:28:41
know in prison and stuff like that but
00:28:43
but a so it's label force is which is
00:28:48
the sum of the employed and the
00:28:49
unemployed divided by those that could
00:28:51
work in
00:28:53
principle okay and that we call that's
00:28:56
what we call the participation rate
00:28:59
how do these numbers look I showed you
00:29:01
this picture in the previous uh lecture
00:29:05
and that's the unemployment rate it
00:29:08
skyrocketed during covid but it has
00:29:10
declined enormously and as I said in the
00:29:12
previous lecture a big issue is that the
00:29:15
unemployment rate today is extremely low
00:29:17
we haven't seen levels like this since
00:29:18
the early
00:29:20
60s okay the unemployment rate today is
00:29:24
at record low levels and that's a
00:29:26
problem some wonderful but it's also as
00:29:29
a problem because we have an inflation
00:29:31
problem and those two things are
00:29:32
connected as you will learn later on in
00:29:34
the course okay but that's what we have
00:29:37
right now that's the unemployment rate
00:29:39
now the reason the unemployment rate is
00:29:41
so low there are two reasons really one
00:29:45
is that there was lots of stimulus
00:29:47
policy fiscal policy monetary policy so
00:29:49
aggregate demand and consumers that were
00:29:51
fed up of being locked out of
00:29:54
restaurants and trips and so on for two
00:29:56
years you know decided to travel and so
00:29:57
on so so and they had lots of
00:30:00
savings the the US consumer accumulated
00:30:03
excess saving of $2.7 trillion and now
00:30:06
they're spending this time China a big
00:30:08
reason why people expect a big bounce
00:30:10
back is because they also had a lot of
00:30:12
savings because they were locked up for
00:30:14
for quite some time so so as a result of
00:30:18
that there's lots of demand for goods
00:30:20
and as you're going to learn in the next
00:30:22
lecture that means lots of output as
00:30:24
well H but the second H reason
00:30:30
is the
00:30:34
following is the participation rate okay
00:30:38
people haven't come back to work in the
00:30:41
magnitudes that we expected so that's a
00:30:43
participation rate in the US remember
00:30:46
participation rate is labor force over
00:30:49
all those that could work in principle
00:30:51
okay ER what do you think is this look
00:30:55
at the participation rate used to be in
00:30:57
the 6 below 60s and then there was a big
00:31:00
rise in the participation rate in the
00:31:02
US what do you think is this due
00:31:05
to women joining work women yeah joining
00:31:09
the workforce that's what it
00:31:11
did okay that's that since then since
00:31:15
just women did all that they had to do
00:31:16
sort of we have been declining and that
00:31:18
that's that's an issue but ER but look
00:31:24
at what happened here lots of people
00:31:26
exit the labor force during covid I mean
00:31:28
you know they had to take care of the
00:31:29
kids and and and or or the elderly and
00:31:33
so people withdrew from the labor force
00:31:35
they didn't want a job it was also
00:31:37
discouraging it was very difficult to
00:31:38
get a job for iag you work in a
00:31:41
restaurant it was impossible to get a
00:31:42
job in a restaurant so but everyone
00:31:46
expected this to recover to the previous
00:31:50
level and it hasn't okay so you be you
00:31:53
see that the participation rate has not
00:31:55
come back to the levels preo is
00:31:58
substantially below and that's one of
00:32:00
the reasons you know that restaurants
00:32:02
complain that they don't have workers
00:32:04
and so on so forth is that many people
00:32:06
haven't come back to a labor force we
00:32:09
thought this was going to be temporary
00:32:11
now there's a concern that a lot of that
00:32:12
is really permanent people decided that
00:32:15
you know life at home wasn't that bad
00:32:17
after all less income but but they spend
00:32:20
more time with the kids or whatever and
00:32:23
so H ER and that's an issue and that
00:32:26
that's a big reason behind
00:32:28
the low unemployment rate and the fact
00:32:30
that we have all this inflation has to
00:32:33
do with everyone in particular the fed
00:32:36
miscalculated the bounce back of of the
00:32:39
participation
00:32:42
rate
00:32:44
good so as I said before we're not going
00:32:46
to look at labor market issues until
00:32:49
sort of the second part of the course
00:32:50
after quiz one and the same is for
00:32:53
inflation we're not going to look at
00:32:54
inflation issues until the second part
00:32:57
of of the course because to connect them
00:33:00
I mean I they are connected and we're
00:33:02
not going to look at Labor markets until
00:33:05
sort of a lecture from now or so okay
00:33:08
but let's look at but this is an
00:33:09
important variable and certainly
00:33:10
something you're facing every single day
00:33:11
in the newspapers and so on the
00:33:13
inflation rate so by inflation when you
00:33:16
hear inflation that typically means the
00:33:19
sustained rise in the general level of
00:33:22
prices so it's not that the price of
00:33:24
cars went up relative to the price of
00:33:25
hotels or now down price hotel is that
00:33:29
on average prices are rising that's what
00:33:31
we call an inflation
00:33:34
inflation um so we're going to call the
00:33:38
price level PT and there are many
00:33:41
different price levels all you see so
00:33:43
the inflation rate when you hear the
00:33:45
inflation rate is the rate of change of
00:33:48
that price
00:33:50
level an episode of
00:33:52
deflation the opposite of what we're
00:33:54
experiencing now where we're exper
00:33:56
inflation is when that inflation rate is
00:33:59
negative Japan most prominently has
00:34:02
experienced something like that not now
00:34:04
but experienced it for on and off for
00:34:06
the last three decades or so um so what
00:34:11
is the price level there are many ways
00:34:12
of defining it and then there many
00:34:14
different price levels a very popular
00:34:16
one is what is called the GDP deflator
00:34:20
and it's the one you see Le you is never
00:34:22
mentioned in the newspapers okay but we
00:34:24
economists tend to look at the deflator
00:34:26
the deflator is nothing else than the
00:34:27
ratio of nominal GDP to real GDP another
00:34:31
one is far more popular and more
00:34:33
relevant for you as consumers is what we
00:34:35
call the Consumer Price Index that's the
00:34:38
CPI you hear CPI that's what it is so
00:34:42
it's it's it's it's you calculate the
00:34:44
rate of inflation from the CPI you
00:34:45
calculate the same way but you use a CPI
00:34:48
there instead of the GDP deflator now it
00:34:52
turns
00:34:53
out H that obviously confused with it it
00:34:57
turns out that these two measures are
00:34:58
sort of pretty well aligned okay there
00:35:01
are differences that may be interesting
00:35:02
at some specific point in time but they
00:35:04
tell you more or less the same picture
00:35:06
in particular there is absolutely no
00:35:08
doubt that we have an inflation problem
00:35:10
these days you can be as selective as
00:35:12
you want with the price index you want
00:35:13
to use and people are getting very
00:35:15
selective now we have CPI
00:35:18
excluding
00:35:20
ER well one thing that that makes a lot
00:35:23
of sense is to exclude the most volatile
00:35:25
Goods so typically the CPI we we use
00:35:28
what called core CPI which removes
00:35:30
energy and food which are very volatile
00:35:33
prices you don't want the thing to be
00:35:34
moving all over the place but now we're
00:35:36
also beginning to remove shelter because
00:35:38
shelter inflation is very high and
00:35:40
sticky and so on so so people can get to
00:35:42
be very selective but no matter how you
00:35:44
look at the thing we have a problem okay
00:35:47
that there's no way around that so
00:35:49
that's the the way again we're not going
00:35:51
to look we're going to talk a lot about
00:35:53
this problem of course but we need to
00:35:56
build tools and and we're going to get
00:35:58
there in about nine lectures from now
00:36:00
okay nine lectures from now we're going
00:36:02
to be able to talk about what what is
00:36:03
going on in with Ms I mean you can talk
00:36:06
whenever you want but with
00:36:08
Ms okay so that those are the concepts I
00:36:11
wanted to discuss today those are the
00:36:13
definitions and relief that we got over
00:36:15
this stuff let me just show you we have
00:36:17
five minutes or
00:36:19
so
00:36:20
er equivalent numbers for other places
00:36:24
around the world that's
00:36:25
China okay
00:36:28
that's China That's GDP growth for China
00:36:31
and there are several things you can see
00:36:32
from for this GDP series the first is
00:36:36
that it was very high this these numbers
00:36:38
look a lot on average it's a lot higher
00:36:40
than the US when I show you the US you
00:36:42
know the rate of growth was moving
00:36:43
around 2% one and a half perc blah blah
00:36:45
blah occasionally recessions and so on
00:36:47
this is China look you had you know
00:36:50
numbers like 10% or so that's
00:36:52
interesting we want to know why is that
00:36:55
you can have so much difference in
00:36:57
different countries okay and and that's
00:37:00
what we're going to do in the third part
00:37:01
of the course when we look at growth
00:37:03
we're going to look at these kind of
00:37:05
factors what can give you sustained rate
00:37:07
of growth sustain I mean for a long
00:37:10
period of time higher than in another
00:37:12
country the the main factor just to
00:37:16
preview what will happen is is
00:37:19
H is simply that China was a lot poorer
00:37:23
than the us at the beginning and when
00:37:25
you're poorer and you put your act
00:37:27
together you can grow a lot faster than
00:37:29
the rest now China is slowing down aside
00:37:33
from covid it's very clear for quite
00:37:35
some time that they have been worried
00:37:37
because clearly GDP growth is
00:37:41
declining okay and and and they're
00:37:44
terrified about that and and and many of
00:37:46
the things that are happening with China
00:37:48
have to do with the fear Associated to
00:37:52
uh slow down in the rate of growth when
00:37:54
they are still quite poor in per
00:37:58
terms okay so that's a lot of what
00:38:01
happens in China has to do with
00:38:04
that if you look at Japan look at Japan
00:38:08
Japan also grew very fast in the 60s
00:38:12
okay you see this very fast rate of
00:38:15
growth then it began to slow down and
00:38:18
pom here collapse they have a massive
00:38:20
crash in the in in in financial markets
00:38:23
equities and land the price of land was
00:38:26
enormous in Japan at this time it had a
00:38:27
big Financial
00:38:29
bubble you know for those of you that
00:38:31
know Japan or if you don't know it
00:38:32
doesn't matter there's a the Imperial
00:38:34
Park in Tokyo which is a park that is
00:38:36
much smaller than Central Park or
00:38:38
whatever the value of that land at some
00:38:40
point in time was the same as the value
00:38:42
of the entire State of California okay
00:38:45
that's the order of magnitude it was not
00:38:47
for sale but you know in terms of
00:38:49
location times price but that's that
00:38:52
bubble crash and since then Japan has
00:38:55
never been able to recover its modu okay
00:38:57
it has been sort of growing at a very
00:38:59
low rate for a very long period of time
00:39:02
and one of the things that scares China
00:39:04
is that this may happen to them because
00:39:08
this happened to Japan when they were
00:39:09
already quite Rich Japan was pretty poor
00:39:11
after the war naturally and they grew
00:39:13
very fast in the 60s but then they had
00:39:16
this issue Financial bubble and so on
00:39:18
they crashing had never been able to
00:39:20
recover and China is worried that you
00:39:23
know that this slowdown happens to them
00:39:25
ER before they have acquire reached sort
00:39:28
of the level of income per capita that
00:39:31
Japan reach when that
00:39:34
happened they common factors behind the
00:39:36
two of them as well demographic factors
00:39:38
demographics are very negative for both
00:39:40
of them and which naturally will slow
00:39:42
down the rate of growth we're going to
00:39:43
look at that later this is inflation in
00:39:47
Japan H you see sort of the most
00:39:49
countries had high inflation around
00:39:51
there because the the were the price of
00:39:54
oil they with massive oil shocks and so
00:39:56
on so inflation was pretty high but the
00:39:58
problem of Japan has been the opposite
00:40:01
since the bubble crash in the late 80s
00:40:04
early 990s they have had very low
00:40:07
inflation
00:40:09
H even deflation and that's been a big
00:40:12
problem part of the reason why they have
00:40:15
had so low growth is because they have
00:40:17
been in this deflationary trap and then
00:40:19
you something you will will look at
00:40:21
later on in the course when when you
00:40:23
have deflation it's pretty it's very
00:40:26
difficult to use monetary policy to get
00:40:27
out of a recession and that's the reason
00:40:30
they keep getting a stack
00:40:32
there so that's all I wanted to say for
00:40:34
today and I'm relief again that this
00:40:36
lecture is behind us in the next lecture
00:40:38
we're going to introduce the first model
00:40:40
what we're going to look at is is H is
00:40:43
how to determine equilibrium GDP and how
00:40:45
that depends on on the a variety of
00:40:49
things including fiscal policy not
00:40:51
monetary policy that will happen later
00:40:54
um but uh how scared you are consumers
00:40:58
preferences and fears and so on so
00:41:01
that's the plan so unless there are any
00:41:03
questions about
00:41:05
this
00:41:07
no so see you next Monday
