CH 02

The Data of Macroeconomics
Chapter 2 of Macroeconomics, 10th edition, by N.

Gregory Mankiw
ECO62 Udayan Roy
Chapter Overview
• What do the following macroeconomic variables represent?

How are they measured?
– Gross Domestic Product (GDP)
– The Consumer Price Index (CPI)
– The Unemployment Rate
You’ve seen this before

in Introductory
Macroeconomics. So, I
will try to be brief.
GROSS DOMESTIC PRODUCT AND ITS
COMPONENTS
GDP is both …
• Total expenditure on domestically-produced
final goods and services.
• Total income earned by domestically-located
productive resources.
Expenditure equals income because

every dollar spent by a buyer
becomes income to the seller.
Final and Intermediate Goods
• GDP counts the value of only final goods, not intermediate
goods
– Intermediate goods are those goods that disappear inside other
goods that are produced for sale
– Final goods are goods that are not intermediate goods
• This way, the value of intermediate goods is counted only once,
not twice or thrice.
The expenditure components of GDP
• consumption, C
• investment, I
• government spending, G
• net exports, NX
The national income identity:
Y = C + I + G + NX
total
expenditure Sum of all components
(GDP) of expenditure
Consumption (C)
•Consumption is the value of all goods and services bought by households.
It includes:
– durable goods
last a long time
e.g., cars, home appliances
– nondurable goods
last a short time
e.g., food, clothing
– services
work done for consumers
e.g., dry cleaning,
air travel
U.S. Consumption, 2017
Gross Domestic Product and its components, 2017

Source: Bureau of Economic Analysis, U.S. Department of Commerce, bea.gov
Last Revised on: March 28, 2018 - Next Release Date April 27, 2018

Total Percent of GDP Per Person
$ millions % $
Gross domestic product 19,390,605 100 59,483.49
Personal consumption expenditures 13,395,505 69.1 41,092.65
Goods 4,295,313 22.2 13,176.49
Durable goods 1,473,802 7.6 4,521.10
Nondurable goods 2,821,511 14.6 8,655.39
Services 9,100,192 46.9 27,916.16

Population (midperiod, thousands) 325,983
Investment (I)
• This is spending on goods bought for future use (i.e., capital
goods)
• It includes:
– Business fixed investment
Spending on plant and equipment
– Residential fixed investment
Spending by consumers and landlords on housing units
– Inventory investment
The change in the value of all firms’ inventories
U.S. Investment, 2017


$ millions % $
Gross private domestic investment 3,212,828 16.6 9,855.81
Fixed investment 3,197,164 16.5 9,807.76
Nonresidential 2,449,581 12.6 7,514.44
Structures 560,180 2.9 1,718.43
Equipment 1,098,360 5.7 3,369.38
Intellectual property products 791,040 4.1 2,426.63
Residential 747,583 3.9 2,293.32
Change in private inventories 15,664 0.1 48.05

Government Purchases (G)
• G includes all government spending on goods and services.
• It excludes transfer payments (e.g., unemployment insurance
payments), because they do not represent spending on goods
and services.
U.S. Government Spending, 2017


$ millions % $
Government consumption expenditures and gross investment 3,353,834 17.3 10,288.37
Federal 1,260,656 6.5 3,867.24
National defense 744,421 3.8 2,283.62
Nondefense 516,235 2.7 1,583.63
State and local 2,093,178 10.8 6,421.13

Net Exports (NX)
• Net Exports = Exports – Imports
• Recall the national income identity: or

• Why do we subtract imports?
• GDP (Y) is spending on domestically produced goods and
services. So, the spending on foreign goods within C, I, and G
on the right-hand side of the equation must be deducted.
Net Exports: NX = EX – IM
20%
Note the
NX increase in the
16%
exports globalization of
imports the U.S.
12%
8%
4%
0%
-4%
-8%
1950 1960 1970 1980 1990 2000 2010
U.S. Net Exports, 2017


$ millions % $
Net exports of goods and services -571,563 -2.9 -1,753.35
Exports 2,343,988 12.1 7,190.52
Goods 1,546,843 8 4,745.16
Services 797,146 4.1 2,445.36
Imports 2,915,551 15 8,943.87
Goods 2,381,754 12.3 7,306.37
Services 533,797 2.8 1,637.50



$ millions % $
1 Gross domestic product 19,390,605 100 59,483.49
2 Personal consumption expenditures 13,395,505 69.1 41,092.65
3 Goods 4,295,313 22.2 13,176.49
4 Durable goods 1,473,802 7.6 4,521.10
5 Nondurable goods 2,821,511 14.6 8,655.39
6 Services 9,100,192 46.9 27,916.16
7 Gross private domestic investment 3,212,828 16.6 9,855.81
8 Fixed investment 3,197,164 16.5 9,807.76
9 Nonresidential 2,449,581 12.6 7,514.44
10 Structures 560,180 2.9 1,718.43
11 Equipment 1,098,360 5.7 3,369.38
12 Intellectual property products 791,040 4.1 2,426.63
13 Residential 747,583 3.9 2,293.32
14 Change in private inventories 15,664 0.1 48.05
15 Net exports of goods and services -571,563 -2.9 -1,753.35
16 Exports 2,343,988 12.1 7,190.52
17 Goods 1,546,843 8 4,745.16
18 Services 797,146 4.1 2,445.36
19 Imports 2,915,551 15 8,943.87
20 Goods 2,381,754 12.3 7,306.37
21 Services 533,797 2.8 1,637.50
22 Government consumption expenditures and gross investment 3,353,834 17.3 10,288.37
23 Federal 1,260,656 6.5 3,867.24
24 National defense 744,421 3.8 2,283.62
25 Nondefense 516,235 2.7 1,583.63
26 State and local 2,093,178 10.8 6,421.13

Consumption, as a share of GDP
1947 Q1 – 2020 Q4
Investment, as a share of GDP
1947 Q1 – 2020 Q4
Government Purchases, as a share of GDP
1929 - 2020
Exports, Imports, Net Exports, as a share of GDP
1929 - 2020
Net Exports, as a share of GDP
1929 - 2020
Real and Nominal GDP
• GDP is the market value of all final goods and services
produced.
• Nominal GDP measures these values using current prices.
– Current prices are the prices that prevailed at the time of production
• Real GDP measure these values using constant prices (the
prices during the base year).
NOW YOU TRY:
2016 2017 2018
P Q P Q P Q
good A $30 900 $31 1,000 $36 1,050
good B $100 192 $102 200 $100 205
Nominal GDP
Real GDP
 Compute nominal GDP in each year.

 Compute real GDP in each year using 2016 as the base year.
NOW YOU TRY:
2016 2017 2018
P Q P Q P Q
good A $30 900 $31 1,000 $36 1,050
good B $100 192 $102 200 $100 205

(30 × 900) + (31 × 1000) + (36 × 1,050) +
Nominal (100 × 192) = (102 × 200) = (100 × 205) =
GDP $46,200 $51,400 $58,300
(30 × 900) + (30 × 1000) + (30 × 1,050) +
Real (100 × 192) = (100 × 200) = (100 × 205) =
GDP $46,200 $50,000 $52,000
GDP Deflator: overall price level
2016 2017 2018
GDP P Q P 100 × Q P 100 × Q

100 51,400/50,000 = 58,300/52,000
Deflator
good A $30 900 $31102.81,000 = 112.1
$36 1,050
Average prices
compared to Same 2.8% higher 12.1% higher
good B
base year $100 192 $102 200 $100 205
(30 × 900) + (31 × 1000) + (36 × 1,500) +
Nominal (100 × 192) = (102 × 200) = (100 × 205) =
GDP $46,200 $51,400 $58,300
(30 × 900) + (30 × 1000) + (30 × 1,500) +
Real (100 × 192) = (100 × 200) = (100 × 205) =
GDP $46,200 $50,000 $52,000
U.S. Nominal and Real GDP, 1929-2020
U.S. Real GDP per capita, 1947Q1-2020Q4
Quarterly data, expressed at an annual rate.

Source: https://fred.stlouisfed.org/series/A939RX0Q048SBEA
Growth Rate: Computation
Value for the year  value for previous year

Growth Rate  100
value for previous year
2016 2017 2018 NOW YOU TRY:
Nominal $46,200 Real and Nominal GDP
$51,400 $58,300
GDP
Growth
Rate %
Real $46,200 $50,000 $52,000
GDP
Growth
Rate %

2016 2017 2018 NOW YOU TRY:
$51,400 $58,300
GDP
Growth 11.26 13.42
Rate % [(51,400 – 46,200) / 46,200] × 100 =
Real $46,200 $50,000 $52,000
11.26
GDP
Growth 8.23 4.00
Rate %

2016 2017 2018 NOW YOU TRY:
$51,400 $58,300
GDP
Growth 11.26 13.42
Rate %
GDP Deflator = Nominal GDP / Real GDP
Real $46,200 $50,000 $52,000
GDP
It is a measure of the overall price level
Growth 8.23 4.00
Rate % Its growth rate is a measure of the rate of
GDP inflation
1.00 1.028 1.121
Deflator
As an approximation, the GDP Deflator’s
Growth 2.80 9.06 growth rate = growth rate of Nominal GDP
Rate % – growth rate of Real GDP
Where to find US data
• Bureau of Economic Analysis, U.S. Department of Commerce:
http://bea.gov
• Federal Reserve Bank of St. Louis:
http://research.stlouisfed.org/fred2/categories/18
International Comparisons
• When the GDP numbers for various countries’ are being
compared, the same currency units must be used
• There are two ways of converting from national countries to a
common currency, such as the US dollar
– Use market exchange rates
– Use a common set of prices (PPP)
GDP per capita, in US dollars
PPP Market Exchange Rates
United States 44063.34 44063.34
United Kingdom 33849.18 40237.54
Japan 32051.81 34263.64
Uruguay 10584.77 6036.12
Ukraine 6269.05 2324.32
Albania
5815.12 2891.94
China 4657.28 2021.97
India 2317.19 762.14
Bangladesh 1223.01 417.66
Ethiopia
724.61 202.05
Liberia
333.45 170.88
Source: World Economic Outlook 2008 database, IMF

Chain-Weighted Real GDP
• Over time, relative prices change, so the base year should be
updated periodically.
• In essence, chain-weighted real GDP updates the base year
every year, so it is more accurate than constant-price GDP.
• Your textbook uses constant-price real GDP, because:
– the two measures are highly correlated
– constant-price real GDP is easier to compute.
GROWTH RATE MATH
If Z = X × Y then gz = gx + gy
z new  zold z new The growth rates here are in decimal form: for
gz   1 example, if X grows at the rate of 5%, then gx = 0.05.
zold zold The product of two decimals is small enough to be
ignored: for example, 0.05 × 0.04 = 0.0020.
z new xnew ynew
1 gz   
zold xold yold
1  g z  (1  g x )(1  g y )
1 gz  1 gx  g y  gx  g y
gz  gx  g y  gx  g y
gz  gx  gy
If Z = X ÷ Y then gz = gx – gy
x
z
y
z y  x
gz  g y  gx
gz  gx  g y
If Z = X then gz = a × gx
a
• , or x multiplied by itself a times

• Therefore, , or the growth rate of x added to itself a times
CONSUMER PRICE INDEX (CPI)
Consumer Price Index (CPI)
• The CPI is a measure of the overall level of prices
– Recall that the GDP deflator is also a measure of the overall level of prices
• The CPI is published by the Bureau of Labor Statistics (BLS)
• The CPI is used to:
– track changes in the typical household’s
cost of living
– adjust many contracts for inflation (“COLAs”)
– allow comparisons of dollar amounts over time
How the BLS constructs the CPI
1. Survey consumers to determine composition of the typical
consumer’s “basket” of goods
2. Every month, collect data on prices of all items in the basket,
and compute cost of basket
3. CPI in any month equals
Cost of basket in that month
100 
Cost of basket in base period
The composition of the CPI’s “basket”
Food and bev. 6.2%
17.4% 5.6%
Housing
3.0%
Apparel 3.1%
3.8%
Transportation 3.5%
Medical care
Recreation
Education 15.1%
Communication
Other goods 42.4%

and services
NOW YOU TRY:
Compute the CPI
Typical consumer’s basket: 20 pizzas, 10 compact discs
prices: For each year, compute

pizza CDs  the cost of the basket
2002 $10 $15  the CPI (use 2002 as the
2003 $11 $15 base year)
2004 $12 $16  the inflation rate from the
2005 $13 $15 preceding year
NOW YOU TRY:
Compute the CPI and Inflation Rate
pizza CDs cost CPI inflation

2002 $10 $15
2003 $11 $15
2004 $12 $16
2005 $13 $15
Cost of typical consumer' s basket in current period

CPI  100
Cost of typical consumer' s basket in base period
NOW YOU TRY:

2002 $10 $15 $350
2003 $11 $15 $370
2004 $12 $16 $400
2005 $13 $15 $410

CPI  100
NOW YOU TRY:

2002 $10 $15 $350 100
2003 $11 $15 $370 105.71
2004 $12 $16 $400 114.29
2005 $13 $15 $410 117.14

CPI  100
NOW YOU TRY:

2002 $10 $15 $350 100
2003 $11 $15 $370 105.71 5.71
2004 $12 $16 $400 114.29 8.11
2005 $13 $15 $410 117.14 2.50

CPI  100
CPI in current period  CPI in preceding period
Inflation  100
CPI in preceding period
CPI vs. GDP Deflator
Prices of non-consumer goods:
– included in GDP deflator (if produced domestically)
– excluded from CPI
Prices of imported consumer goods:
– included in CPI
– excluded from GDP deflator
The basket of goods:
– CPI: fixed
– GDP deflator: changes every year
A Third Measure of the Overall Price Level!
• The Personal Consumption Expenditures deflator is a measure
that is gaining in popularity
• Compare this to the GDP deflator:

A Third Measure of the Overall Price Level!
• The GDP deflator considers the prices of all domestically
produced final goods and services whereas the PCE deflator
considers the prices of only consumer goods and services,
wherever produced.
CPI vs. GDP Deflator vs. PCE Deflator
Prices of non-consumer goods:
– included in GDP deflator (if produced domestically)
The PCE deflator is a compromise between the CPI and
– excluded from CPI and PCE deflator the GDP deflator. For this reason, the Federal Reserve,
Prices of imported consumer goods: which conducts monetary policy in the US, considers
the PCE deflator its preferred measure of the price level.
– included in CPI and PCE deflator More precisely, the Fed uses a version of the PCE
deflator that ignores the prices of food and energy. This
– excluded from GDP deflator is the Core PCE deflator. It is less volatile (because it
leaves food and energy out) and is considered more
The basket of goods: useful as a guide to future prices.
– CPI: fixed
– GDP deflator and PCE deflator: changes every year
CPI vs. GDP Deflator vs. PCE Deflator
UNEMPLOYMENT
The Current Population Survey
• The Bureau of Labor Statistics (BLS) of the U.S. Department of
Labor computes the unemployment rate every month
• The data comes from a monthly survey of U.S. households
called the Current Population Survey
– See http://bls.gov/cps/
• This survey classifies each adult into one of three categories:
employed, unemployed, and not in the labor force
Three Population Categories
• This survey classifies each adult into one of three categories:
– employed (working at a paid job)
– unemployed (not employed but looking for a job), and
– not in the labor force (not employed, not looking for work)
• Labor force = employed + unemployed

Two important labor market stats
• unemployment rate
percentage of the labor force that is unemployed
• labor force participation rate
percentage of the adult population that is in the labor force
U.S. Unemployment Rate, 1948 Jan-2020 Dec
Source: https://fred.stlouisfed.org/series/UNRATE
U.S. Labor Force Participation Rate
1948 Jan-2020 Dec
Source: https://fred.stlouisfed.org/series/CIVPART
NOW YOU TRY:
Computing labor statistics
U.S. adult population by group, May 2009
Number employed = 140.57 million
Number unemployed = 14.51 million
Adult population = 235.45 million
Use the above data to calculate

 the labor force
 the number of people not in the labor force
 the labor force participation rate
 the unemployment rate
NOW YOU TRY:
Answers
data: E = 140.57, U = 14.51, POP = 235.45
 labor force
L = E +U = 140.57 + 14.51 = 155.08
 not in labor force
NILF = POP – L = 235.45 – 155.08 = 80.37
 unemployment rate
U/L x 100% = (14.51/155.08) x 100% = 9.4%
 labor force participation rate
L/POP x 100% = (155.08/ 235.45) x 100% = 65.9%
Unemployment and Labor Force Participation
Population Labor Force Unemployed Unemployment Rate Labor Force Participation Rate
Situation A 10 10 1 10% 100%
Situation B 10 9 0 0% 90%
• Suppose the one unemployed person in Situation A gets discouraged and

drops out of the labor force
• The result is Situation B
• The unemployment rate is lower in Situation B. But that does not mean it is an
improvement over Situation A.
• Lesson: We need to watch both the unemployment rate and the labor force
participation rate. A fall in the former is good news only when it is not
accompanied by a fall in the latter.
The Current Establishment Survey
• The BLS obtains a second measure of employment by surveying
businesses, asking how many workers are on their payrolls.
– See http://bls.gov/ces/
• Neither measure is perfect, and they occasionally diverge due
to:
– treatment of self-employed persons
– new firms not counted in establishment survey
– technical issues involving population inferences from sample data
Two measures of employment growth
8%
household survey
6% establishment survey
from 12 months earlier
Percentage change
4%
2%
0%
-2%
-4%
1960 1970 1980 1990 2000 2010
U.S. Labor Data
• Current Population Survey: http://bls.gov/cps/
• ftp://ftp.bls.gov/pub/special.requests/lf/aat1.txt
• Current Establishment Survey: http://bls.gov/ces/
• ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb1.txt
• ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb2.txt
International Labor Comparisons
• The BLS presents internationally comparable labor data for
many countries at http://bls.gov/fls/home.htm
Chapter Summary
• Gross Domestic Product (GDP) measures both total
income and total expenditure on the economy’s
output of goods & services.
• Nominal GDP values output at current prices;
real GDP values output at constant prices. Changes
in output affect both measures,
but changes in prices only affect nominal GDP.
• GDP is the sum of consumption, investment,
government purchases, and net exports.
Chapter Summary
• The overall level of prices can be measured
by either:
– the Consumer Price Index (CPI),
the price of a fixed basket of goods purchased
by the typical consumer, or
– the GDP deflator,
the ratio of nominal to real GDP
• The unemployment rate is the fraction of
the labor force that is not employed.

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CH 02

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The Data of Macroeconomics

Chapter 2 of Macroeconomics, 10th edition, by N.

• What do the following macroeconomic variables represent?

You’ve seen this before

Expenditure equals income because

• Recall the national income identity: or

good A $30 900 $31 1,000 $36 1,050

good B $100 192 $102 200 $100 205

 Compute nominal GDP in each year.

good A $30 900 $31 1,000 $36 1,050

good B $100 192 $102 200 $100 205

GDP P Q P 100 × Q P 100 × Q

Quarterly data, expressed at an annual rate.

Value for the year  value for previous year

Value for the year  value for previous year

Value for the year  value for previous year

Source: World Economic Outlook 2008 database, IMF

• , or x multiplied by itself a times

Other goods 42.4%

prices: For each year, compute

pizza CDs cost CPI inflation

Cost of typical consumer' s basket in current period

pizza CDs cost CPI inflation

Cost of typical consumer' s basket in current period

pizza CDs cost CPI inflation

Cost of typical consumer' s basket in current period

pizza CDs cost CPI inflation

Cost of typical consumer' s basket in current period

• Compare this to the GDP deflator:

• Labor force = employed + unemployed

Use the above data to calculate

• Suppose the one unemployed person in Situation A gets discouraged and

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