BBM-ME-II

MODULE – A
Macro-Economics &
Economic Statistics
Prof. (Dr.) D N Panigrahi
PhD (Finance), MBA (Fin-FMS, DU), CFA & MS-Finance, CAIIB & DFS, M.Sc. (Physics)
 Micro-Economics –Vs- Macro-Economics

In the field of economics, microeconomics is the study of the

economic activity and behavior of individual economic units, such as a
household, a business firm, or a market for a particular good or service,
and macroeconomics is the study of the aggregate activities of
households, business firms, and markets (the economics of broad
aggregated variables in the economy).
Microeconomics studies individual markets in detail, holding all other
things constant.
Macroeconomics studies the economy as an integrated system, but
simplifies by looking only at broad aggregates.
 Micro-Economics –Vs- Macro-Economics

Macroeconomics studies the economy as a whole. In contrast to

microeconomics, where we examine specific product (goods) and resource
(factor) markets and the behaviour of individual decision-making units such
as consumers, firms and resource owners, we now focus on the larger picture
of the economy, composed of collections of many consumers, firms,
resource owners and markets.
Instead of individual product prices, we study the general price level of the
economy; instead of demand for individual products, we examine total
demand for goods and services; and instead of individual firm and industry
supply, we examine the total output produced in the economy.
Further, in macroeconomics we study total employment, total investment,
total exports and imports and more such totals or wholes, which in
macroeconomics are called aggregates.
 Scope of Macroeconomics

Since the Keynesian revolution, the economics profession has had

essentially two theoretical systems, one to explain the small picture, the
other to explain the big picture (micro and macro are the Greek words,
respectively, for “small” and “big”).
Macroeconomics focuses on national aggregates, such as total investment,
the amount spent by all businesses on property, plant and equipment (PP &
E); total consumption, the amount spent by all households on goods and
services; the rate of change in the general level of prices (inflation rate); and
the overall level of interest rates.
Macroeconomic analysis examines a nation’s aggregate output and income,
its competitive and comparative advantages, the productivity of its labour
force, its price level and inflation rate, and the actions of its national
government and central bank.
 Objectives of Macroeconomic Analysis

The objective of macroeconomic analysis is to address such

fundamental questions as:
 What is an economy’s aggregate output, and how is aggregate
income measured?
 What factors determine the level of aggregate output/income for
an economy?
 What are the levels of aggregate demand and aggregate supply of
goods and services within the country?
 Is the level of output increasing or decreasing, and at what rate?
(GDP & GDP Growth Rate)
 Is the general price level stable, rising, or falling? (Inflation Rate)
 Objectives of Macroeconomic Analysis

The objective of macroeconomic analysis is to address such

fundamental questions as (Contd…):
 Is unemployment rising or falling?
 Are households spending or saving more?
 Are workers able to produce more output for a given level of
inputs? (Productivity of Labour)
 Are businesses investing in and expanding their productive
capacity? (Capital Formation)
 Are exports and imports rising or falling?
 Macroeconomic Analysis: Different Stakeholders

There are different stakeholders or interested parties in

macroeconomic analysis: business firms, investors, lenders,
economists, researchers, academicians, government, policy
makers and public in general.
 From an investment perspective, investors must be able to
evaluate a country’s current economic environment and to
forecast its future economic environment in order to
identify asset classes (debt, equity, real estate, currencies
and commodities etc.) and securities that will benefit from
economic trends occurring within that country.
 Macroeconomic Analysis: Different Stakeholders

 Macroeconomic variables—such as the level of inflation,

unemployment, consumption, government spending, and
investment—affect the overall level of activity within a
country.
 They also have different impacts on the growth and
profitability of industries within a country, the companies
within those industries, and the returns of the securities
issued by those companies.
 Macroeconomic Analysis: Shift of Focus
 In this course, we change our focus from the microeconomic factors influencing
managers—prices, costs, and market structure—to factors arising in the larger
macroeconomic environment, such as the overall level of income and output
produced in the economy, the price level, and the level of employment and
unemployment.
 The latter factors are affected by the spending decisions of individuals and
organisations throughout the economy. Thus, macroeconomic analysis focuses on
the aggregate behavior of different sectors of the economy.
 However, changes in the macro environment affect individual firms and industries
through the microeconomic factors of demand, production, cost, and profitability.
 Although managers cannot influence the macroeconomic environment, they need
to understand the policies that change that environment to determine whether
they need to modify their competitive strategies.
 Introduction: Economic Statistics

 We begin this slide/session with a brief look at the

key issues in macroeconomics.
 The rest of the slide/session describes the key
economic statistics typically produced in major
economies.
 It is useful background reading for the rest of the
course.
 Macroeconomics

 In managing a country’s economy there are three major factors to

consider:
 Internal
 • unemployment
 • inflation
 External
 • the balance of payments and exchange rates
 These factors will be influenced by the overall level of economic
activity, which the government will seek to control by means of
fiscal policies (taxation and government spending) and monetary
policies (control of the money supply and interest rates).
 Macroeconomics

 Indeed, we should consider the level of economic activity

as a key factor in economic management in its own right.
 These issues are the subject matter of Macroeconomics and
are considered in more detail in this course.
 First, however, we need to consider the nature of the
principal economic statistics used to measure and describe
the macroeconomic environment.
 Nature of Principal Economic Statistics:
Gauge for Macroeconomic Environment
 Issues in the publication of national statistics: There is a wide
range of economic statistics available, especially for developed
and emerging countries. We will consider the most important.
 It is useful to note some general features of the principal
economic statistics.
 Seasonal adjustment: Many figures are produced as crude
data, and also as seasonally adjusted data. The point of
seasonal adjustments is to allow observation of underlying
trends which would otherwise be obscured by seasonal
fluctuations.
 Issues in the publication of national statistics

 [Seasonal adjustments are a statistical method to smooth out

aberrations in time series of certain types of economic activity
that occur on a regular or cyclical basis. These adjustments
provide a clearer view of net trends and nonseasonal changes in
data. This adjustment allows economists and statisticians to
better understand the underlying base trends in a given time
series.]
 For example, unemployment tends to fall in the summer: people
find temporary summer jobs, and more construction work takes
place in the relatively good weather.
 Issues in the publication of national statistics

 Real values: Most figures that are measured in monetary units are
produced in real terms. These real figures are obtained by deflating
nominal values using an appropriate price index. So, for example, a
rise in retail sales from Rs.100 million to Rs.105 million will
represent a 5% increase in the real volume of sales, rather than an
increase in the value of sales resulting from a 5% price rise
(inflation).
 Timing of data: Data is usually published soon after the end of the
period to which it refers. In some cases the initial data is a provisional
estimate of the main data. At a later stage a more accurate figure will
be published. In some cases this is accompanied by a more detailed
breakdown of the data.
 Economic Activity

 Quarterly National Accounts Figures (Statistics): Arguably the most

important economic statistics are the national accounts figures. Typically
these are produced quarterly. These show the country’s Gross Domestic
Product (GDP) and Gross National Product (GNP) as well as its
components, final consumption aggregates, income, savings and
employment. The exact meaning of these terms, and the relationship
between them, is explained later in the course.
 Other Measures of Economic Activity: Various items of economic
activity can be looked at individually to give a greater understanding of
what is happening in the economy.
 Figures are published for consumer spending subdivided into
spending on consumer durables (aka consumer discretionaries) and
consumer non-durables (aka consumer staples).
 Economic Activity

 Other Measures of Economic Activity (Contd…):

 Consumer spending is expenditure by private individuals, rather than
by firms or by government.
 “Consumer durables” are long lasting goods such as cars, washing
machines, and televisions, while “Consumer non-durables” are items
used up more quickly, such as food.
 Question 9.1: Why is it helpful to subdivide consumer spending into
that on durables and that on non-durables?
 Economic Activity

Solution 9.1: The impact of the state of the economy on consumer

spending on durables is more severe than it is on spending on non-
durables.
 This is because more of the spending on non-durables (staples) is on
basic necessities, such as food, clothing etc. for which demand is more
stable and relatively inelastic.
 Whereas the spending on durables is discretionary, such as cars,
televisions etc. for which demand is much more elastic. This elastic
demand means that it can plummet very quickly in response to decreases
in consumers' incomes or increases in prices of consumer discretionary
goods. Demand for these goods tends to rise when the economy is
strong, while people cut back on discretionary spending when the
economy falters.
 Economic Activity

 Fixed investment expenditure: These figures show the purchase of new

machines and factories by manufacturing industry.
 Stocks: Figures for the real volume of stocks, raw materials and work-in-
progress held by manufacturers, wholesalers and retailers are published.
 Index of Industrial Production (IIP): An index showing the real volume of
industrial and manufacturing output is published. In many countries figures
are also given for broad sectors of industry (e.g., textiles, food).
 Index of Agricultural Production (IAP): An index showing the real volume
of agricultural output is published.
 Monthly index of retail sales: This is an index showing the real volume of
sales. Typically, sub-indices are given for broad categories of retailing (e.g.,
clothing, food).
 Forward Looking Measures of Economic Activity

 Surveys: National agencies often survey expectations of future activity in

a country. For example, in the UK the CBI (Confederation of British
Industry) publishes the results of two questionnaires which it sends to
companies:
 1 The CBI Industrial Trends Survey
 2 The CBI Distributive Trades Survey
 The most frequently reported statistic is the balance of firms expecting
sales to increase over the next few months over those expecting a fall in
sales. For example, a figure of +40 may indicate that 70% of firms are
optimistic and 30% pessimistic. Unlike other economic statistics these
figures are forward looking rather than historic. The CBI survey is
therefore considered to be a “leading indicator” of UK economic activity,
and many investors watch it closely.
 Forward Looking Surveys for Tracking Indian Economy

 Movements in level of activities in organised business sector of an

economy provide a prelude to aggregate economic activities in a market
economy. As official statistics, including national accounts, provide
backward-looking information on performance at sectoral/ overall level,
the data gap for real-time analytical needs of policy-makers is sought to
be met by conducting business and consumer tendency surveys.
 These surveys have intrinsic utility in providing policy makers and
economic agents with more timely qualitative information on business
sentiment that may be driving business conditions and decisions including
for the foreseeable future. Most of the central banks rely on forward-
looking corporate surveys to get idea on decisions made on the future
course of business which would affect major sectors/aggregate economy.
 Industrial Outlook Survey (IOS) for the
Indian Manufacturing Sector by RBI
 In India, RBI has been conducting a comprehensive quarterly
Industrial Outlook Survey (IOS) for the Indian manufacturing
sector since 1998.
 As regular data on many conventional business cycle indicators
(e.g., comprehensive monthly/quarterly/annual variables related to
employment, housing starts) used in developed economies are not
available, IOS supplements other macroeconomic variables for
business cycle analysis and provides useful input in the assessing
macroeconomic conditions for formulation of macroeconomic
policies, especially monetary policy.
 Industrial Outlook Survey (IOS) for the
Indian Manufacturing Sector by RBI
 Housing starts are a measure of new residential construction, and are
considered a key economic indicator. A housing start is counted as soon as
groundbreaking begins, and each unit in a multi-family housing project is
treated as a separate housing start.
 Because new housing is a big-ticket capital good that spurs additional
consumer spending on appliances and furniture, it is a key economic
indicator closely watched by financial markets participants.
 IOS captures the assessment of business sentiments for current quarter
and expectations for ensuing quarter, based on qualitative responses on a
set of parameters pertaining to the demand, financial, employment and
price situation.
 Forward Looking Surveys for Tracking Indian Economy

 Other agencies also conduct business expectation/tendency surveys

for the Indian manufacturing sector, of which, regular results are
available from
 (a) Business Confidence Survey of the National Council of Applied
Economic Research (NCAER),
 (b) Business Optimism Survey of M/s Dun and Bradstreet (D&B)
and
 (c) Purchasing Managers’ Index (PMI) survey by HSBC Bank.
 A summary of Business Tendency surveys conducted in India is
presented in Table 2.
 Table 2: Major Business Tendency Surveys Conducted in India
Agency Index Frequency Methodology of index calculation

Reserve Bank of Business Quarterly Composite indicator calculated as weighted average of industry
India (RBI) Expectation Index wise net response on nine select parameters, viz., overall business
(BEI) situation, production, order books, capacity utilisation, exports,
inventory of raw material, inventory of finished goods,
employment and profit margin.

M/s Dun and Business Optimism Quarterly Composite indicator capturing aggregate behavior of all six indices,
Bradstreet (D&B) Index (BOI) viz., volume of sales, net profit, selling price, new orders, inventory
levels, employees

National Council of Business Quarterly The index is based on four indicators, viz., overall economic
Applied Economic Confidence Index conditions, financial position of the firms, current capacity
Research (NCAER) (BCI) utilisation and present investment climate

HSBC-PMI (Markit Purchasing Monthly Composite indicator based on five individual indices, viz, new
Economics) Managers’ Index order, output, employment, supplier delivery time, stock of item
(PMI) purchased
 Forward looking measures of economic activity
 Cyclical Indicators: The government publishes cyclical indicators which try
to predict up-turns and down-turns in the economy at various stages in
advance. In the UK there is a “longer-leading” index, a “shorter-leading index”,
a “coincident” index and also a “lagging” index. They are composed of various
factors such as share prices and the CBI business confidence survey.
 Macroeconomic Forecasts: Various organisations publish the results of their
own macroeconomic models. These usually provide forecasts for the key
economic variables of inflation, gross domestic product, unemployment and
the balance of payments over the next two or three years. Each month The
Economist publishes an average of the latest macroeconomic forecasts.
 Examples of organisations that publish economic forecasts for the UK are the
Treasury, The London Business School and the NIESR (National Institute of
Economic and Social Research). The OECD (Organisation for Economic Co-
operation and Development) publishes forecasts for a wide range of countries.
 Unemployment Statistics
 There are two sources of data on unemployment. The most
commonly reported are the government’s unemployment figures.
Figures are published for both the actual (or “headline”) number
of unemployed and for a seasonally adjusted figure. The need for
seasonal adjustment arises because unemployment in some industries
such as tourism, construction and farming is seasonal. Figures are also
typically shown for different regions.
 The headline figure for unemployment will depend on how
“unemployment” is defined. This differs over time and between
countries. In many countries like the UK, a worker has traditionally
been classed as “unemployed” if he or she is out of work and
claiming unemployment benefit.
 Unemployment Statistics
 This definition may give a figure that differs from the “true” level of
unemployment because:
 • people who don’t really want to work may register as unemployed in
order to obtain unemployment benefit
 • people who are unemployed but not eligible for unemployment
benefit would not be included.
 The second source of unemployment data comes from a survey of
households in which people are asked if they are currently looking
for work. These figures are compiled in an internationally agreed
way and are therefore usually more suitable for international
comparisons than the government’s figures. This second series also
acts as a check on the government’s figures.
 Unemployment Statistics
 This second measure may be regarded as more accurate (in some sense) in
that it does not focus only on benefit claimants, or less accurate in that it is
based on a survey rather than a count.
 Measurement of Unemployment: Unemployment is sometimes expressed
as a rate by expressing the number of unemployed as a percentage of the
labour force, which would normally include employees, the self
employed, the unemployed and members of the armed forces.
 The formula to calculate the current unemployment rate in India is as
follows:
 Unemployment Rate = Number of Unemployed Persons / Civilian Labor
Force. Or,
 Unemployment Rate = Number of Unemployed Persons/(Number of
Employed Persons + Number of Unemployed Persons)
 Unemployment Statistics
 The formula to calculate current unemployment rate in India has
following conditions:
 To be classified as unemployed, an individual must meet specific criteria:
 They must be at least 16 years old and available to work full-time in the
last four weeks.
 They should be actively seeking employment during this period.
 Some exceptions include individuals who are temporarily laid off and
actively looking to rejoin their previous jobs.
 Question 9.2: In a country with a population of 30 million people, there
are 20 million in the total workforce and 1 million unemployed. What is
the country’s unemployment rate?
 Solution 9.2: Unemployment rate = 1/20 = 5%.
 Measures of Inflation
 Retail or Consumer Prices Index (RPI or CPI): The Retail Prices Index
(RPI) or Consumer Prices Index (CPI) is published monthly by the
government. It refers to prices over a few days in the middle of the
previous month. Usually, the figure quoted in the press and on television
is the percentage change in the index over the previous twelve months.
 The index is calculated as a weighted average of the price index for a
large number of goods and services bought by households. It covers
goods purchased in shops as well as services paid for from the home,
such as electricity bills.
 The Monetary Policy Committee (MPC) of our RBI uses CPI data to
control inflation. In April 2014, RBI had adopted the CPI as its key
measure of inflation.
 Measures of Inflation
 CPI measures price changes from the perspective of a retail buyer. It is
released by the National Statistical Office (NSO).
 The CPI calculates the difference in the price of commodities and services
such as food, medical care, education, electronics etc. which Indian
consumers buy for use.
 The CPI has several sub-groups including food and beverages, fuel and
light, housing and clothing, bedding and footwear.
 Some price indices also include financial services such as mortgage
interest, insurance and rent. Indices may also be adjusted to reflect
sales and property taxes.
 The weights used to construct the index are in proportion to a typical
household’s expenditure as determined by a regular survey of
household expenditure. The weights are periodically updated.
 Headline –Vs- Core CPI Inflation in India
 Headline inflation is a measure of the total or overall inflation within an
economy (the raw inflation figure) as reported through the Consumer Price Index
(CPI) that is released monthly by the Bureau of Labor Statistics. The CPI
calculates the cost to purchase a fixed basket of goods, as a way of determining
how much inflation is occurring in the broad economy. The CPI uses a base year
and indexes the current year's prices according to the base year's values. Headline
inflation includes prices of commodities such as food and energy prices (e.g., oil
and gas), which tend to be much more volatile and prone to inflationary spikes.
 On the other hand, "core inflation " (also non-food-non-fuel-manufacturing or
underlying inflation) is the change in the costs of goods and services but does not
include those from the food and energy sectors (fuel or oil). This measure of
inflation excludes these items (food and fuel components) because their prices are
much more volatile in order to distinguish the inflation signal from transitory
noise.
 Headline –Vs- Core CPI Inflation in India
 Food prices can be affected by factors outside of those attributed to the economy,
such as environmental shifts that cause issues in the growth of crops. Energy
costs, such as oil production, can be affected by forces outside of traditional
supply and demand, such as political dissent.
 The inflation process in India is dominated to a great extent by supply shocks.
The supply shocks (e.g., rainfall, oil price shocks, etc.) are transitory in nature
and hence produce only temporary movements in relative prices. The headline
CPI inflation in India tends to increase whenever there is a surge in food and fuel
prices.
 Core inflation by excluding items which exhibit transitory or temporary price
volatility reflects the inflation trend in an economy. Core inflation is calculated to
gauge the actual inflation apart from temporary shocks and volatility.
 Measures of Inflation

 Question 9.3: Using the data below relating to the components of the
retail price index of a country, determine the annual rate of inflation
for Year-2020 as measured by the change in the retail price index.
Item Index Weight Price index at 31 Price index at 31
December 2019 December 2020
Food 20 140 145

Housing 20 126 135

Transport 15 152 146

Other Goods 15 130 125

 Measures of Inflation

 Solution 9.3:
 RPI at 31 December 2019 = (20x140 + 20x126 + 15x152 +
15x130)/70 = 136.429.
 RPI at 31 December 2020 = (20x145 + 20x135 + 15x146 +
15x125)/70 = 138.071.
 Therefore, rate of inflation for 2020 = (138.071/136.429) - 1 = 1.20%.
 Producer Price Index (PPI)
 Producer price inflation can be taken as an early indicator of “cost-push”
inflation (which we discuss later in the course).
 Two sets of price indices are published under this heading. There is an
index of input prices, and also an index of output prices (often called
“factory gate” prices).
 Input prices show the raw material and fuel costs that manufacturers are
facing. Changes in output prices show the extent to which manufacturers
are passing on price rises. Increases in input and output prices are likely to
feed through into subsequent rises in the CPI index. These indices
therefore act as early indicators of the future course of inflation, although
the relationship with the CPI is not exact (e.g., retailers may absorb part of
an output price rise by accepting lower profit margins, and service sector
inflation may be different from manufacturing inflation).
 Wholesale Price Index (WPI) Used in India
•A wholesale price index (WPI) measures overall change in producer prices
over time. It is a measure of inflation based on the prices of goods before they
reach consumers. Producer Price Index (PPI) is known as wholesale price
index (WPI) in India.
•It measures the changes in the prices of goods sold and traded in bulk by
wholesale businesses to other businesses. Published by the Office of
Economic Adviser, Ministry of Commerce and Industry, Govt. of India.
•It is the most widely used inflation indicator in India. Major criticism for
this index is that the general public does not buy products at wholesale
price. The base year of All-India WPI has been revised from 2004-05 to
2011-12 in 2017. Wholesale price indexes (WPIs) are reported monthly in
order to show the average price changes of goods.
 National Average Earnings Index (NAEI)
 A measure of how earnings are changing can be compared with changes in
the CPI index to see how real living standards are changing. Changes in
earnings can also act as an indicator of possible cost push inflation.
 The National Average Earnings Index (NAEI) is published monthly by
the government by some countries. It covers both manual and non-
manual employees. It gives a headline figure, an estimate of the
underlying trend, and a breakdown of figures for earnings in services and
in manufacturing.
 The index is constructed by sampling a number of firms and using
weights derived from the Census of Employment in some countries.
 Measures of Inflation
 Inflation statistics seek to measure:
 • consumer price inflation
 • producer price inflation
 • earnings inflation.
 Foreign Trade
 Balance of Payments: Monthly figures are published for the balance of
payments, typically split between “visible” and “invisible” items. Analyses
will show balances with major trading partners (countries and regional
groups). The balance of payments records trade and money flows between a
country and the rest of the world. The balance of payments is crucial in
determining exchange rates. This link is explained later in the course.
 Exchange Rate Index (ERI): In addition to individual currency exchange
rates, an exchange rate index (ERI) is usually compiled. This measures the
value of the domestic currency against a basket of other currencies. The index
is compiled using weights which reflect the importance of the other currencies
for the country’s overseas (foreign or international) trade. For example in UK,
the sterling/euro exchange rate has a weight of about 50%, whilst the
sterling/Swiss franc exchange rate only has a weight of about 5%.
 Foreign Trade
 Official Reserves: Official reserve figures are published monthly by
the government or the Central Bank. Later in the course you will
see how the official reserves can be sold to help support the exchange
rate of the domestic currency against other currencies (when there is
excess volatility in domestic currency against some foreign currency
and the central bank has to intervene in the forex market to calm the
market).
 A decrease (increase) in official reserves shows that the Central Bank
has been trying to increase (reduce) the value of the domestic
currency above (below) the rate that would otherwise prevail.
 Other Economic Statistics
 Public Sector Borrowing Requirement (PSBR): Monthly figures
for categories of spending, categories of revenue and
privatisation proceeds are published by the government.
 The figures vary considerably from month to month. For example,
some tax receipts are concentrated in certain months of the year. To
avoid making misleading conclusions, figures for one month need to
be compared with figures from the corresponding month in the
previous year. Often the cumulative total for the year to date is
compared with the cumulative total at the same stage in the previous
year.
 Other Economic Statistics
 Money Supply: Some economists (known as Monetarists) believe that the
money supply is the key economic variable that can be used to control the
economy. There are various definitions of the money supply. Detailed figures
are published by the Central Bank each month. However, most
interest is focused on two aggregates known as M0 and M4.
 M0 is called the “reserve money” or “central bank money” or “monetary base”
or “high-powered money”. It is the base level for the money supply or the high-
powered component of the money supply.
 Mo = Currency in circulation + Commercial Banks’ deposits with the RBI +
‘Other’ deposits with the RBI
 M4 (Broader Money) = Mo + Demand & Time Deposits of Public with the
banking system + All Post Office Deposits both Savings Bank & Time Deposits
excluding National Savings Certificates etc.
 We shall look at M0 and M4 in more detail later in the course.
 Other Economic Statistics
 Financial Markets: Commercial publications such as the Economic Times of
India, Financial Times of the UK and the Wall Street Journal of the US
produce a mass of data which is of interest to investors. The figures which
are of most interest to economists include:
 indices showing the overall level of the stock market
 gilts prices and yields (gilts are the Government Securities aka G-Sec or
Sovereign Bonds)
 current or spot exchange rates
 forward exchange rates (i.e., the exchange rate applicable for currency
transactions that will occur in the future, but for which the exchange rate is
agreed today)
 current or spot commodity prices (e.g., the price of wheat, rice or metals etc.)
 forward commodity prices
 Other Economic Statistics
 International Data: Statistics are provided on an international
basis by organisations such as the OECD (The Organisation for
Economic Co-operation and Development), the IMF (The
International Monetary Fund), the World Bank, the United Nations,
the ILO (The International Labour Organisation) and the World
Trade Organisation (WTO). Regional data is provided by
organisations such as the EBRD (The European Bank for
Reconstruction and Development), the European Central Bank
(ECB) and the Asian Development Bank (ADB).
 Other Economic Statistics
Question 9.4: (i) Describe briefly the principal types of
historic data typically available for each of:
(a) economic activity
(b) the level of unemployment
(c) the rate of inflation
(ii) In each case, suggest other sources of data that an
economist might use to give further insight into the variable
being studied.
 Other Economic Statistics
 Solution 9.4:
 (a) Economic activity
 (i) Quarterly national accounts figures. These show the country’s Gross
Domestic Product (GDP) and Gross National Product (GNP).
 (ii) Consumer spending/stocks/investment expenditure/industrial
production/retail sales.
 (b) The level of unemployment
 (i) Government unemployment figures for those out of work and
registered with the department as being willing and available for work.
Typically, a headline and a seasonally adjusted figure are published, with a
regional breakdown.
 (ii) Figures from the household survey.
 Other Economic Statistics
 Solution 9.4:
 (c) The rate of inflation
 (i) The Retail Prices Index (RPI) or Consumer Prices index (CPI) is
published monthly. Usually the figure quoted is the percentage change in
the index over the previous twelve months. The index is calculated as a
weighted average of the price index for a large number of goods and
services bought by households. The weights are in proportion to a typical
household’s expenditure as determined by a regular survey of household
expenditure.
 (ii) Producer input prices/producer output prices.
 (A measure of earnings inflation can also be compared with changes in the
RPI/CPI index to see how real living standards are changing.)
 Other Economic Statistics
 Question 9.5: The government has a wide range of statistics available to help
inform its economic decision making. List some problems that the government
may face in using the available statistics.
 Solution 9.5:
• The available statistics may be out of date. In particular it will take time for the
raw data to be collected and analysed.
• Statistics in respect of a particular economic variable under discussion may not be
available.
• The available statistics may be inaccurate.
• Different statistics may give conflicting information, eg the different measures of
inflation may change in different ways.
• Distinguishing genuine underlying trends in a set of figures may be difficult. This
problem will be compounded if there is any seasonal variation in the figures.
 Summary

 Macroeconomics: Macroeconomics studies the economy as an

integrated system, but simplifies by looking only at broad
aggregates. The key variables in macroeconomics are economic
activity, unemployment, inflation and the balance of payments.
 Economic statistics: A wide range of economic statistics is
published. Monetary figures are usually expressed in real terms. In
addition figures may be seasonally adjusted.
 The main measures of economic activity such as gross domestic
product (GDP) and gross national product (GNP) are published in
the national accounts.
 Summary

 Other measures of economic activity include:

 consumer (consumption) and investment expenditure
 industrial production
 agricultural production
 retail sales
 surveys
 cyclical indicators
 macroeconomic forecasts
 Unemployment figures are published monthly by the government.
The actual number of unemployed, a seasonally adjusted figure and
a regional breakdown are typically given. Unemployment figures
derived from a representative household survey are also available.
 Summary

 The main inflation index is the Retail or Consumer Prices Index.

This index is published monthly and represents the relative level of
prices for a basket of goods purchased by a typical household. Some
analysts like to calculate “underlying” inflation. A producer price
index is published for both input and output prices. The National
Average Earnings Index (NAEI) covers both manual and non-
manual workers.
 Monthly balance of payments figures are published.
 The money supply can be defined in various ways. The main
measures are M0 and M4. M0 is called “narrow” money or the
“monetary base”. M4 is a wider definition of money.
 Summary

 Other important economic statistics are:

 The Central Bank’s trade-weighted exchange rate index
 Official reserve figures published by the government or Central
Bank
 PSBR figures
 Data published in commercial publications such as the Financial
Times.
 KEY TERMS

• Macroeconomics, Economic activity,

Unemployment, Inflation, Balance of payments,
Economic statistics, Seasonal adjustment, Real
values, Timing of data, Gross domestic product,
Gross national product, National accounts, Consumer
spending, Fixed investment expenditure, Stocks,
Index of industrial production.

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 KEY TERMS

• Index of agricultural production, Index of retail sales,

Surveys, Cyclical indicators, Macroeconomic
forecasts, Government unemployment figures,
Household survey, RPI and CPI, Producer price
index (PPI), Wholesale price index (WPI), Cost-push
inflation, Input and output prices, NAEI, Balance of
payments, ERI, Official reserves, PSBR, M0 & M4.

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