MDSX m01 SP Slides v2 Annotated

Macroeconomic Diagnostics (MDSx)
Module 1
Supply and Productivity
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Any reuse requires the permission of the IMF and ICD.
Required to effectively communicate video segments.
Course: MDSx
Module: 1
Section: 1
Video #: 1
Video Title: About Module 1
Video Type: Text
Key Idea
What determines capacity to produce goods and

services?
 Constraint on production
Required Negative
Space
(Not for instructor
 Change in production constraint over time notes.)
Please do not adjust

text field positions.
 Analytical tool – what are the supply side drivers of

growth?
Course: MDSx
Module: 1
Section: 2
Video #: 1
Video Title: The Production Function Approach
Video Type:
Production Function Approach
Capital – Labor –
Total Factor
Total Output Value of Number of Workers
Productivity
Plant/Equipment Employed
Required Negative
Space
Y  A * f ( K , L)
(Not for instructor
notes.)

Insert visual content

to the left.
Production Function Approach
Capital – Labor –
Total Factor
Total Output Value of Number of Workers
Productivity
Plant/Equipment Employed
Required Negative
Space
Y  A * f ( K , L)
(Not for instructor
notes.)


to the left.
Course: MDSx
Module: 1
Section: 2
Video #: 2
Video Title: Investment and Capital Accumulation
Video Type: Text
Investment and Capital Accumulation
Investment
Capital Stock Capital Stock Depreciation Flow
Expenditures Flow
Current Period Previous Period Current Period
Current Period
Required Negative
Space
(Not for instructor
K t  K t -1  I t  DEPt
notes.)


to the left.
Investment and Capital Accumulation
Yesterday’s
Today’s
Capital Stock Gross Investment
Capital Stock
Net of Depreciation
Required Negative
Space
(Not for instructor
K t  K t -1 (1   )  I t
notes.)


to the left.
Course: MDSx
Module: 1
Section: 2
Video #: 3
Video Title: Investment and Capital Accumulation in Excel
Video Type: Excel
EXCEL
Placeholder to insert full canvas diagram or chart.
(Draft in PowerPoint and within the guides.)
(Step 1)
Course: MDSx
Module: 1
Section: 2
Video #: 4
Video Title: The Labor Force and Employment
Video Type: Text
The Labor Force and Employment
Labor – Working Age Labor Force

Labor Force Population Participation Rate
Required Negative
Space
LF  WAP * LFPR
(Not for instructor
notes.)


to the left.
The Labor Force and Employment
Labor –
Number of Workers Labor Force Employment Rate
Employed
Required Negative
Space
L  LF * ER
(Not for instructor
notes.)


to the left.
Course: MDSx
Module: 1
Section: 2
Video #: 5
Video Title: The Labor Force and Employment in Excel
Video Type: Excel Demo
EXCEL
(Step 2)
Course: MDSx
Module: 1
Section: 2
Video #: 6
Video Title: Total Factor Productivity
Video Type:
Total Factor Productivity
Required Negative
Space
(Not for instructor
A = f (Technology, Institutions, and Policies) notes.)


to the left.
Output Per Capita, Average Ye arly Growth

(In percent)
0.04
United States
0.03 Selected European Countries

(average) Required Negative
Space
(Not for instructor
0.02 notes.)

0.01
to the left.
0.00
0 0 2 0 5 0 0 0 5 0 7 5 00 06 10
17 18 18 19 19 19 20 20 20
1- 0 0- 2 0- 5 0- 0 0- 5 0- 7 5- 00
-
06
-
17 18 18 19 19 19 20 20
-0.01
Source: New Maddison Project Database (2013)
Total Factor Productivity: Key Innovations
Key innovations of the 19th and 20th centuries:

Energy
Transportation Required Negative

Space
(Not for instructor
notes.)
Communication Please do not adjust

Health and sanitation

"Doing Business" and To tal Factor Productivity - 2014
0.50
ln(Total Factor Productivty)
0.00
f(x) = 1.21602512230628 x − 5.61985362573587 Required Negative

Space
-0.50 (Not for instructor
notes.)
-1.00
-1.50
to the left.
-2.00
3.00 3.20 3.40 3.60 3.80 4.00 4.20 4.40 4.60 4.80
Ln("Doing Business Indicator -- Distance to Frontier")
Sources: World Bank, Penn World

Tables
Required Negative
Space
(Not for instructor
notes.)


to the left.
Required Negative
Space
(Not for instructor
notes.)


to the left.
Course: MDSx
Module: 1
Section: 3
Video #: 1
Video Title: The Cobb-Douglas Production Function
Video Type:
The Cobb-Douglas Production Function
Total Factor
Total Output Capital Labor
Productivity
Required Negative
Space
(Not for instructor
 1-
Y  A* K * L
notes.)


to the left.
0  1
 1-
Y  A* K * L
Required Negative
The exponential terms are growth elasticities. Space
(Not for instructor
notes.)

⍺ = Growth elasticity for capital text field positions.
⍺ = 0.3
 1-
Y  A* K * L
Required Negative
About the share of output… Space
(Not for instructor
notes.)

⍺ = Capital’s share of output text field positions.
(1-⍺) = Labor’s share of output

Course: MDSx
Module: 1
Section: 3
Video #: 2
Video Title: The Growth Decomposition Approach
Video Type:
The Growth Decomposition
Total Factor
Total Output Capital Labor
Productivity
Required Negative
Space
%Y  %A(res)   *%K  (1-  )*%L

(Not for instructor
notes.)


to the left.
%A(res)  %Y   *%K  (1-  ) *%L

The Growth Decomposition: Activity
%Y  %A(res )   *%K  (1-  ) *%L
Step 1: Calculate capital stock K using ‘perpetual inventory’ method
Step 2: Calculate employment (L) using employment rate and labor force data
Required Negative
Step 3: Calculate growth rates for Y, K, and L Space
(Not for instructor
notes.)
Step 4: Calculate contributions for K and L
Step 5: Calculate contributions for A as a residual
Step 6: Calculate averages for several periods
Step 7: Interpret results

Course: MDSx
Module: 1
Section: 3
Video #: 3
Video Title: The Growth Decomposition Approach in Excel
Video Type: Excel
EXCEL
(Steps 3, 4, 5)
Course: MDSx
Module: 1
Section: 4
Video #: 1
Video Title: Capital Stock Growth with Excel
Video Type: Text, Excel
Capital Stock Growth
K t  Kt -1  I t - DEPt  Kt -1  I t   K t -1
Required Negative
Divide capital dynamic equation by previous period’s capital – obtain Space
(Not for instructor
GROWTH RATE of capital: notes.)

Kt K  I - DEPt K  I   Kt -1 I   Kt -1 I
%K   1  t -1 t  1  t -1 t 1  t  t 
K t -1 K t -1 Kt -1 Kt -1 Kt -1 Insert visual content
to the left.
EXCEL
It = Investment/GDP ratio * Yt Required Negative

Space
(Not for instructor
notes.)

= Investment/GDP ratio * AK ⍺L1-⍺ Insert visual content
to the left.
Required Negative
Space
Short-run / direct  1
Y  AK L
(Not for instructor
effect of TFP notes.)


to the left.
Required Negative
Space
Long-run / induced  1
Y  AK L
(Not for instructor
investment effect of notes.)
TFP Please do not adjust


to the left.
Course: MDSx
Module: 1
Section: 4
Video #: 4
Video Title: Calculating Averages for Several Periods in Excel
Video Type: Excel
EXCEL
(Step 6)
Course: MDSx
Module: 1
Section: 4
Video #: 2
Video Title: Per Capita Approach
Video Type: Text
Standard of Living
Output Total Factor

Capital Per Worker
Per Worker Productivity
Required Negative
Space
(Not for instructor
notes.)

 1- Y  K 
Y  A* K * L  L   A  L 

to the left.
Standard of Living
Total Factor
Growth of Output Growth of Capital
Productivity –
Per Worker Per Worker
Residual Growth
Required Negative
Space
(Not for instructor
notes.)
[%Y  %L]  %A(res)   [%K  %L] Please do not adjust

to the left.
Standard of Living: Bottom Line
TFP is important to raise the standard of living.
Even if capital accumulation speeds up, the elasticity will

Required Negative
mean growth of per-worker output of less than one-to-one Space
(Not for instructor
(since alpha is less than one). notes.)

Course: MDSx
Module: 1
Section: 4
Video #: 3
Video Title: The Growth Decomposition: Interpreting Results with Excel
Video Type: Text, Excel
EXCEL
(Step 7)
Course: MDSx
Module: 1
Section: 4
Video #: 5
Video Title: The Growth Decomposition: Looking Forward with Excel
Video Type: Excel
The Growth Decomposition: Looking Forward
%Y  %A(res)   *%K  (1-  ) *%L

Required Negative
Space
(Not for instructor
notes.)
Are future values…
Consistent with past economic behavior? Insert visual content
to the left.
Supported by other analysis?
Realistic – not too optimistic or pessimistic?

The Growth Decomposition: Looking Forward
Implied Total Prospective Prospective Prospective

Factor Productivity Total Output Capital Labor
Required Negative
Space
(Not for instructor
notes.)
%A(res)  % Y   *%K  (1-  ) *%L Please do not adjust

to the left.
EXCEL
Course: MDSx
Module: 1
Section: 5
Video #: 1
Video Title: Summarizing What We Learned
Video Type: Text
Course: MDSx
Module: 1
Section: 5
Video #: 2
Video Title: ** Conversation
Video Type: n/a
Course: MDSx
Module: 1
Section: 6
Video #: 1
Video Title: Revealing the Results of Diagnostica
Video Type: Excel

MDSX m01 SP Slides v2 Annotated

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MDSX m01 SP Slides v2 Annotated

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Macroeconomic Diagnostics (MDSx)

Supply and Productivity

What determines capacity to produce goods and

Please do not adjust

 Analytical tool – what are the supply side drivers of

Please do not adjust

Insert visual content

Please do not adjust

Insert visual content

Please do not adjust

Insert visual content

Please do not adjust

Insert visual content

Labor – Working Age Labor Force

Please do not adjust

Insert visual content

Please do not adjust

Insert visual content

Please do not adjust

Insert visual content

Output Per Capita, Average Ye arly Growth

0.03 Selected European Countries

Please do not adjust

Key innovations of the 19th and 20th centuries:

Transportation Required Negative

Communication Please do not adjust

Health and sanitation

"Doing Business" and To tal Factor Productivity - 2014

f(x) = 1.21602512230628 x − 5.61985362573587 Required Negative

Ln("Doing Business Indicator -- Distance to Frontier")

Sources: World Bank, Penn World

Please do not adjust

Insert visual content

Please do not adjust

Insert visual content

Please do not adjust

Insert visual content

Please do not adjust

Please do not adjust

(1-⍺) = Labor’s share of output

%Y  %A(res)   *%K  (1-  )*%L

Please do not adjust

Insert visual content

%A(res)  %Y   *%K  (1-  ) *%L

%Y  %A(res )   *%K  (1-  ) *%L

Step 1: Calculate capital stock K using ‘perpetual inventory’ method

Step 6: Calculate averages for several periods

Step 7: Interpret results

Please do not adjust

It = Investment/GDP ratio * Yt Required Negative

Please do not adjust

Please do not adjust

Insert visual content

TFP Please do not adjust

Insert visual content

Output Total Factor

Insert visual content

Insert visual content

TFP is important to raise the standard of living.

Even if capital accumulation speeds up, the elasticity will

Please do not adjust

%Y  %A(res)   *%K  (1-  ) *%L

%Y  %A(res)   %K  (1-  )%L

%A(res)  %Y   %K  (1-  ) %L

%Y  %A(res )   %K  (1-  ) %L

%Y  %A(res)   %K  (1-  ) %L