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41:21
Transcript
0:17
I expect that there will be many fun
0:19
lectures in the sense that we're going
0:20
to have you know we're going to be
0:21
discussing a little more exactly at the
0:24
right time in which that issue is an is
0:26
an important issue at least as D in the
0:30
newspapers and you know we live in we
0:32
are going through a very interesting
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0:34
time for microeconomist inflation is
0:37
unusually high something needs to be
0:39
done about that er um we still have
0:43
problems on the supply side of the
0:45
economy as a result of CO as a result of
0:48
the slow reopening of
0:50
China um we have a war going on which is
0:54
affecting also the price of energy and
0:56
it's particularly impacting Europe and
1:00
all these things are the situation is
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1:01
very fluid all of them can change at at
1:04
any moment and uh and policy makers are
1:08
s therefore paying very close attention
1:10
to all these things it's not a normal
1:12
time if you're a policy maker
1:14
macroeconomist microeconomist policy
1:17
maker uh you you are not sleeping a lot
1:20
on these days and so so I expect that we
1:23
will have plenty of time to discuss
1:26
interesting things and analyze them um
1:30
at a slightly higher level than you can
1:32
do at this moment now I also told you in
1:36
the previous in the introduction that
1:38
that this particular
1:40
lecture is not going to be of that kind
1:44
you know it's going to be very boring in
1:46
the sense that you know we need to start
1:48
with definitions and and and I don't
1:50
know who likes definitions I don't it's
1:52
very boring now there is an interesting
1:56
or a curious side of the definitions
1:58
we're going to discuss which which is
2:00
that if you were taking 1401
2:03
microeconomics many of the concepts
2:05
we're going to describe require no
2:06
definition they're obvious I mean if you
2:08
I ask you for output of a factory that
2:10
produces cars it's pretty obvious that
2:12
it's a number of cars if I ask you for
2:14
the prices of those cars is pretty
2:16
obvious what the price of a car is not
2:19
so for macro because if I ask you what
2:21
is the output of the US economy well
2:24
there's millions of goods and services
2:26
are produced at the same time so so what
2:28
do we mean by output a single measure of
2:31
output or if I ask you about the price
2:33
level or the inflation the rate at which
2:35
that price level is changing well what
2:37
are we talking about it's very easy to
2:39
see where the price of a car is going up
2:41
but if we're mixing sort of millions of
2:44
different goods and services then it's a
2:47
little harder and that's the reason we
2:48
need this lecture because it's it's a
2:50
little harder than 1401 and we need to
2:52
Define basic things but they have a
2:54
trick because you're suming apples and
2:56
oranges not only apples and oranges
2:59
apples oranges health services financial
3:02
services all of them in in one piece and
3:05
so so it's a little trickier and that's
3:07
the reason we need this boring lecture
3:09
we need to go through
3:11
that slightly trickier definition of
3:14
output prices and so
3:19
on
3:21
ER okay so let me let me start with the
3:24
most basic thing aggregate output at the
3:27
end of the day when where the econom is
3:28
in a recession or not and so we don't
3:31
like it or we do like it depends on what
3:34
is happening to Output is output growing
3:36
at the pace it used to grow is it
3:38
growing less or it's declining well
3:41
that's very important for macro and to
3:44
understand the health of an economy the
3:45
microeconomic health of an economy but
3:47
we need to start by defining what we
3:50
mean by
3:51
output and because it's a tricky thing
3:54
to do when you're adding so many apples
3:56
oranges Financial Services ER
3:59
entertainment and lots of things that
4:02
are very different H it wasn't there we
4:05
didn't have a good way of doing that in
4:07
fact the national accounts as we know
4:09
them in the US is something that we have
4:12
since the post-war period in in the late
4:14
40s that we develop the technique the
4:17
approach to come up with a measure of
4:19
our output before that we had measures
4:22
proxies you know industrial production
4:24
is very high I meaning we're producing
4:26
lots of cars stuff like that and
4:27
somebody but something systematic like
4:30
we have today is a pretty recent uh
4:33
thing okay we call that NEPA the
4:36
national income and product
4:39
account income and product that's going
4:42
to be very important for macro as you'll
4:44
see in a minute um so the main measure
4:47
of aggregate output is what we call
4:49
gross domestic product or simply GDP you
4:53
hear GDP that means output of an economy
4:57
why is gross and not net you're not
4:58
going to worry about that in this course
5:01
okay but that's you hear
5:03
GDP most microeconomist wouldn't say
5:06
output they would say GDP it's very
5:07
short it's efficient and so on well
5:09
that's what it means it's the output of
5:11
an economy but how do we Define it as I
5:14
said before it's much harder than when
5:16
you have an individual
5:17
good by the way I will be most of the
5:21
time I will say
5:22
Goods but really is goods and services
5:26
but it's very long to say goods and
5:28
services no so whenever I say Goods I'm
5:31
not trying to play any trick on you I
5:33
really mean goods and services I just
5:35
mean lazy okay and most people are lazy
5:38
that way okay now what is the difference
5:40
between goods and services you you're
5:42
not going to worry a lot about that in
5:43
this no you're not going to worry at all
5:45
about that in this course but just to
5:48
get a sense goods are things that you
5:50
know that are tangible services are
5:52
things that are not that tangible there
5:55
are benefits that you receive from the
5:56
task that someone else operates on you
5:58
so you go to the to you know the medical
6:02
center you don't come up with a piece of
6:04
a machine to well they may lend you
6:07
something but but you don't come out
6:09
with an objective you come out with the
6:11
service provided by a doctor to you okay
6:14
and the same happens if you go to a bank
6:16
you don't come with a ATM with you what
6:19
you come up with is the service of
6:21
having done a transaction or deposit or
6:24
go on a mortgage or something like that
6:25
it's a service if you go to a
6:28
restaurant again you don't what you can
6:31
what you have is an experience it's a
6:34
people provided an experience to you
6:36
things are a little tricky because if
6:37
you do a take out well is that an
6:39
experience or is really the goods so so
6:43
if you get into those details which
6:44
you're not going to get it gets to be
6:46
tricky but but but just to get a
6:49
sense on average a consumer in the US
6:53
two third of the consumption is in
6:56
services not in Goods it's not sort of
6:58
the banana and so on that you buy it's a
7:01
lot of the financial services health
7:02
services and entertainment and things
7:05
like that traveling that's what you
7:07
spend most of your time having clarified
7:11
that you can of forget that from now on
7:14
I'm going to say Goods occasionally may
7:16
say goods and services but I always mean
7:18
the same okay good so um so how do we
7:24
measure these things so well there there
7:25
are different ways ER of of of doing
7:28
this something happened to my slide
7:32
there okay there we
7:35
are um so suppose that you have a an
7:39
economy that is very simple I don't need
7:41
to tell you how simple this economy is
7:43
it has just two
7:45
firms okay suppose we have an economy
7:48
that's very simple has two firms one
7:51
firm produces a steel and the other one
7:53
produces cars and the company that
7:56
produces cars buys all the steel from
7:58
the company no body you as a consumer
8:00
don't buy you don't buy steel directly
8:03
the car company buys a steel uses to
8:05
produce a car and you buy the car okay
8:08
so that's our simple economy and that's
8:10
those are the the accounts of the of the
8:12
simple economy so there you have company
8:16
one has a revenue from sales it sells
8:20
$100 okay so price of steel times steel
8:24
is
8:25
$100 the second company H uses B is Ste
8:30
uses workers and sells
8:34
$200 no so the question I ask you the
8:37
first question I ask you here is well
8:38
what is the GDP of this economy here you
8:40
have an economy that has two goods
8:42
needless to say a real economy is a lot
8:43
more complicated than this but you have
8:46
two companies and I ask you what is
8:49
GDP so the obvious things that you could
8:52
come up with is well I Su all the
8:54
revenues okay so that's the obvious one
8:57
the total GDP of these economies is 300
9:00
that's a sensible
9:02
answer okay at least at this moment I
9:04
would accept that as a sensible answer
9:06
in the quiz I wouldn't but here it's a
9:09
sensible answer I mean well you ask me
9:10
for what is the total output of that
9:12
economy I sum up all the revenues on
9:15
sales and that's
9:19
300 okay so so um is it
9:24
300 well or is it 200 I mean that's
9:28
another you says well look only the
9:31
final goods perhaps should count because
9:34
you know this is the only thing that you
9:37
as a consumer will ever see this part
9:40
not that those are two sensible answers
9:42
and what I'll show you in three
9:44
different ways is that the right answer
9:47
is 200 for that economy okay not 300 the
9:51
right answer is
9:53
200 so method
9:56
one H and all these methods are used and
9:59
they use to check each other H to
10:02
compute H
10:04
GDP uh so method one is what I said here
10:08
is final goods you said
10:10
GDP is the value of the final goods and
10:14
services producing the economy during a
10:17
given period of time notice that GDP is
10:19
a concept of a flow it's something you
10:21
produce in a year okay that's the reason
10:22
you say GDP of the US in 2022 was you
10:27
know 23 23 trillion dollar is in a year
10:31
okay it's a it's a period of time okay
10:34
so so that's one definition and one way
10:38
of of of er
10:42
of making sense of this definition is
10:45
imagine that I give you the same economy
10:48
with the same two factories and now all
10:50
of a sudden I tell you you know what I'm
10:52
going to merge the two companies so
10:54
company the car company will buy the
10:56
steel meal or whatever
10:59
well if I now put together those two
11:01
accounts now I never see the steel
11:03
because it that's all happening inside
11:04
the the factory and it's still the case
11:07
that the economy would be producing 200
11:09
Cars and all that you would see is 200
11:12
no because I would put this thing
11:14
together there was a steel that this
11:16
company had purchased from that but now
11:17
it's all inside okay so so if I put them
11:21
together then that steel there doesn't
11:23
appear because it's all produced inhouse
11:26
and now GDP would be 200 well it makes
11:28
no sense
11:29
that just because I change the ownership
11:32
structure of the companies that your GDP
11:34
changes collapses from 300 to 200 if I
11:38
only measuring final goods though I
11:39
don't have that problem it's still 200
11:42
doesn't matter that I have the merge
11:44
slice and LIC in 20 or whatever so
11:46
that's that tells you that that's we're
11:48
going the right way here because you
11:49
know it's it's a very robust answer that
11:53
is you don't count intermediate output
11:54
you only count the final goods which are
11:56
the things that the consumer will buy
11:59
buy the firms will buy for investment
12:01
and things of that kind that foreigners
12:03
will
12:05
buy alternative method is GDP is the sum
12:09
of value
12:11
added in the economy during a given
12:13
period of time what is value added the
12:17
difference between final the final goods
12:19
produced by a company and the
12:21
intermediate inputs it purchased to
12:23
produce those
12:24
goods okay so what is the value added of
12:28
the steel company here
12:30
it's the answer is there but you know
12:33
but what is the value added it's 100 how
12:36
do I know it's 100 well because it's not
12:38
buying any intermediate input and the
12:40
revenue is
12:41
100 okay so that's the reason I get 100
12:45
there okay 100 there's no intermediate
12:47
input what is the value added of the car
12:50
company well the revenue on sales is 200
12:53
but it purchase 100 in intermediate
12:55
inputs so the value is 200 minus 100 the
12:59
value out of this company is 100 100
13:01
plus 100 I get my 200 again
13:04
yep
13:07
consider wages to be in really good no
13:11
that's those are not Goods those are
13:12
factors of
13:14
production okay so this and the same
13:17
there are machines in that factory that
13:19
are helping you produce things that's a
13:21
service of the machine it's Capital
13:23
that's not an intermediate input an
13:24
intermediate input is another good or
13:27
service that you buy for the the purpose
13:29
of producing that that good
13:33
okay so workers is not workers are
13:36
working inside your company and so on if
13:38
the work was if the work was produced
13:41
was outsourced and you had another
13:43
company that produces something that you
13:45
use from those workers that would be an
13:47
intermediate input but you would have to
13:48
count the value out of the other of the
13:50
companies you have outsourced too you
13:53
see so that's method two two and you see
13:56
we get exactly at 200 those two method
13:59
methods are called production methods
14:00
there are different ways of measuring
14:02
the production of the economy the third
14:04
method and the last one is an income
14:08
method which means look all that is
14:12
produced has to be earned by someone the
14:15
workers the owners of capital somebody
14:17
has to own that if the firms sell
14:20
collectively $200 those $200 have to be
14:23
allocated to someone someone means
14:26
workers the owners of capital of the
14:28
first Ms or in realistic economies the
14:32
government you pay taxes and things of
14:33
that kind okay we're not going to worry
14:35
about the government for a
14:37
while so that's an alternative method
14:39
it's method three you just sum the
14:42
incomes so who are the factors of
14:44
productions here related to your
14:45
question in this there is no government
14:47
here no taxes so we have only workers
14:50
and profits you the capital the owners
14:52
of the Company wages is 80 + 70 is
14:57
150 profits is 20 + 30 50 150 in wages
15:02
plus 50 in profit gives you back your
15:05
200 okay so those are the three ways we
15:07
have of measuring these things and you
15:09
see they give you exactly the same
15:10
result now there is
15:13
something as I as I from the
15:15
construction of national account there
15:16
is something interesting in what I just
15:18
said which is look I can that production
15:22
is the same as
15:23
income that's going to be very important
15:26
for macro very important for macro
15:29
and it's totally unimportant for
15:32
micro when you're looking at a company
15:34
for example in micro and you're looking
15:36
at a car company by
15:38
itself it is true that you know the
15:41
output of that company becomes income
15:44
part for the owners of the company and
15:46
part for the workers but that income
15:49
needs not be spent in cars can spend in
15:53
food entertainment and whatever not so
15:56
in
15:57
macro because what else you going to
15:59
spend it to than in the same good that
16:01
you're producing in the aggregate good
16:04
so it's very interesting that's a very
16:06
distinctive feature of micro that is not
16:08
present in micro is that that income has
16:10
to be spent in the same Goods if the
16:12
econom is closed later on we're going to
16:14
open the economy to the rest of the
16:15
world and then you get you buy some
16:16
Chinese goods and blah blah blah but if
16:18
you keep it close hey you are not going
16:21
to buy cars that's what you work on but
16:23
you're going to have to buy it in the
16:24
single good of the
16:26
economy which is the sum of all the
16:28
goods that we we consume an average
16:30
that's going to be very
16:32
important anyways this time is this
16:35
stuff move in the right direction okay
16:37
so that's that's that's that now you
16:39
know what GDP is and the different ways
16:41
of measuring you're going to have to
16:44
remember that
16:45
for for p set one and for quiz one and
16:49
you might as well forget it for the
16:51
future it's good that you understand the
16:52
concept but it's different ways of
16:53
constructing is not very
16:55
important second thing we need to worry
16:58
about
16:59
is that whenever you're thinking about
17:01
the output of an economy you're really
17:03
trying to think about the real output
17:05
meaning number of cars and number of
17:06
machines and so on but you have
17:09
inflation for example then prices of
17:11
these things are growing and so the
17:13
total revenue on sales is growing but
17:16
they don't mean the same and we want to
17:18
certainly separate these two things and
17:20
for that reason we have a concept which
17:22
is called nominal GDP and another one
17:25
which is called real GDP nominal GDP is
17:28
the simplest thing on Earth is
17:30
essentially you know we had only one
17:32
final goods company there which was cars
17:34
but mind you have cars refrigerators
17:36
many many things nominal GDP simply you
17:39
sum all the final goods and you multiply
17:41
them by the the current price and that
17:44
gives you the dollar GDP that you have I
17:46
don't know what it is in the US today
17:48
you could check it but it's $24
17:51
trillion a so that's it P * Q you know
17:55
prices times quantity and you sum across
17:57
all the final goods
17:59
that's we have to that's one way of
18:01
calculating thing that's nominal GDP but
18:04
again what we really care about is we're
18:06
going to get a lot about later on is how
18:09
that econom is doing over time is it
18:10
growing is it not growing nominal GDP
18:13
can grow for two different reasons can
18:15
grow because the economy is really
18:18
becoming more productive is producing
18:20
more Goods or because prices are going
18:23
up now at this moment real nominal GDP
18:26
is growing very fast in the US despite
18:28
the fact that we may have recession this
18:29
year we don't know but nobody has any
18:32
doubt that nominal GDP will grow because
18:34
we have lots of inflation and so you
18:36
want to separate these two things and
18:38
the thing that removes the inflation
18:40
component is what we call real
18:43
GDP and real GDP if you hear the word
18:47
only GDP and and that was produced by
18:50
somebody understand what he's talking
18:51
about GDP really means real GDP okay if
18:54
you just hear GDP people are try is
18:57
trying to say the output of the economy
18:59
well that's real GDP and the real GDP is
19:03
computed many tricks but but essentially
19:07
what you do is you consume you you you
19:11
you also sum across all the
19:13
goods you also Su across the goods but
19:16
you use constant prices not the prices
19:19
of that point in time
19:21
necessarily okay so I'm going to give
19:23
you a very concrete example but before
19:25
doing that for this course we're going
19:27
to call nominal GDP and all nominal
19:30
variables are going to have that's what
19:31
the textbook does they're going to have
19:33
a dollar sign in front so that's our
19:35
measure that's nominal GDP GDP is going
19:38
to be Y without the dollar that's real
19:40
GDP okay for the first part of the
19:43
course up to quiz one we're we're going
19:46
very we're going to worry very little
19:47
about nominal things because we want to
19:49
have prices completely fixed but but you
19:51
still need to know the concept and
19:53
that's real GDP so now let me give you
20:01
an example so suppose you have this this
20:05
this the simple economy we had before
20:07
we're just going to look at final goods
20:09
because that's what we need to look
20:11
at to con to construct GDP and so this
20:15
economy produces cars and supposedly
20:17
produces 10 cars in 2011 12 cars in
20:21
2012 and 13 cars in in 2013 but suppos
20:26
the price of a car is what you see there
20:28
20,000 24,000 and
20:30
26,000 nominal GDP is simply the
20:33
product you know of this times that that
20:36
gives you
20:37
$200,000 12 cars times $25,000 gives you
20:41
288 and so on that's nominal
20:43
GDP real
20:45
GDP you have to
20:48
pick which price you want to use but
20:51
only use one and don't vary it over time
20:54
okay so in this particular case we pick
20:57
2012
20:59
okay so that means when you say GD real
21:01
GDP at 20 2012 2012 base 2012 or at 2012
21:06
prices means that you're using the
21:08
prices of 2012 you don't bury that you
21:11
let quantities change over time but the
21:13
prices remain fixed so in this case real
21:16
GDP at
21:17
$22 is you know is 10 cars times 25,000
21:22
that give you 240,000
21:25
12 cars time 24,000 28
21:29
this is interesting for this year
21:30
nominal GDP is the same as real GDP why
21:32
is
21:34
that it's an
21:40
accident exactly we're using that's a
21:43
base year so that's nominal GDP will
21:45
always be equal to real GDP at the base
21:48
year that's the Year we're picking as
21:50
the base know because those are the
21:51
prices we're
21:53
using I what about 2013 well is is not
21:57
26,000 * 13 is 24, 1013 so we get 312
22:02
and it's obvious here that real GDP is
22:04
growing less than nominal GDP why is
22:07
that well because this economy has
22:09
inflation prices are rising over time
22:12
and we want to remove that when we want
22:13
to look at the real concept the real
22:16
concept removes the price
22:19
effect there are times in which you
22:22
don't want to remove all that price
22:24
effect and it happens a lot for example
22:26
in computers because sometimes the
22:28
increase in the price of the computer is
22:30
simply because the computer is better
22:32
and and you want to correct for quality
22:33
and so on but again that's not something
22:35
you need to worry about in this course
22:42
okay maybe some of you deciding the pace
22:44
which you want me to move I'm really
22:46
puzzled by this stuff here this is this
22:50
is from the book and you see what
22:52
happened in in the US with nominal and
22:55
real GDP with base year 2012 so as I
22:58
said before these two curves one is
23:00
nominal GDP the red line the blue line
23:03
is real GDP we're using Bas year 2012 so
23:06
at that point they have to be the same
23:09
and what you see very very clearly there
23:12
is that a the Blue Line real GDP is
23:17
flatter than the red line why is
23:20
that why is it
23:27
yeah is inflation see yeah by the way I
23:29
do have a reference for you so ask me
23:31
after the okay
23:33
good um anyway so yeah in the US between
23:37
1916 and 2018 real nominal GDP increased
23:40
by a factor of 38 while real GDP by a
23:43
factor of 5.7 big difference so so you
23:45
better be careful when when you look at
23:47
GDP that you are removing inflation
23:49
especially in I mean if you were to look
23:51
in
23:52
Argentina these guys have had a
23:53
recession a chronic recession for a long
23:55
time big recessions but nominal GDP is
23:58
explo clothing because they have 10,000%
24:00
inflation so so so it makes a big
24:05
difference especially over
24:09
time this is just so you get the picture
24:11
the complete picture for the US this is
24:13
a GDP growth in the US since we have
24:16
national accounts okay and some
24:19
noticeable things well again
24:21
recessions this was a big recession
24:23
remember we call this the Great
24:25
Recession big recession and well this is
24:29
covid and then this is 2020 and then
24:32
they bounce back in 2021 when we reopen
24:34
the economy big growth but that's very
24:36
anomalous I mean that's a very weird
24:38
shock okay but that's a you see these
24:41
are all the shaded areas are
24:43
recessions recessions are defined in a
24:46
slightly more complicated way than that
24:48
but one sort of er popular way of
24:52
describing ression is as episode where
24:55
you have two consecutive quarters of
24:57
negative inflation that's not the formal
24:59
definition of res but it's pretty close
25:01
okay and so so that's that's what you
25:05
have
25:06
there another concept is an employment
25:10
rate the unemployment rate so that's GDP
25:13
and we're going to the in the first part
25:14
of the course we want to worry a lot
25:16
about that we're going to build a model
25:18
on how to find equilibrium H GDP okay
25:22
and we're going to see what happens with
25:23
fiscal policy with monetary policy how
25:25
how does equilibrium GDP macroeconomic
25:28
EIC output changes with different forms
25:31
of policies or when consumers get scared
25:33
or stuff like that
25:38
okay what about the unemployment rate
25:40
the unemployment rate is not something
25:41
we want to worry a lot about until the
25:44
second part of the course after quiz one
25:46
but I still I want to get over with
25:48
these
25:48
definitions so what is employment is a
25:51
number of people who have a job that's
25:53
easy unemployment is slightly less easy
25:57
because it's first of all obviously to
25:59
be an employee you don't have to have a
26:00
you cannot have a job so but it's not
26:03
enough that you don't have a
26:06
job is an
26:08
unemployed person is somebody that
26:10
doesn't have a job and is looking for
26:13
one
26:16
okay not all unemployed people look for
26:18
your job not all non-employed people are
26:21
looking for
26:22
jobs okay so un to be unemployed you
26:26
need to not have a job and be looking
26:29
for one the labor force what we call the
26:32
labor force is the sum of those two
26:34
groups the employed and the unemployed
26:37
that would like to get a
26:39
job
26:41
okay the unemployment rate which is
26:44
something I showed you in the previous
26:45
lecture is just a ratio of these two
26:48
concepts the unemployed over the labor
26:50
force notice over the labor force not
26:53
population the labor force which is a
26:55
sum of the employed and those that are
26:58
unemployed that do not have a job and
27:01
are looking for a job
27:05
okay how how is an employment measure in
27:09
the US is mostly a survey and I have the
27:11
the the info there it's called the CPS
27:15
the current population survey that
27:17
consults lots of households and they ask
27:20
them about the employment status whether
27:21
they have been looking for a job over
27:23
the last two weeks or not and so on and
27:25
that's the way we come up with with the
27:27
number as as I said before H those that
27:30
do not have a job but are not looking
27:32
for a job they haven't been looking for
27:33
a job in the last two weeks are called
27:36
not in the labor force that's that's
27:38
what we say now these concepts are
27:41
between an employed and not in the labor
27:44
force is it's not not that clear we we
27:47
we look at the employment rate but we
27:49
also tend to look at those people as
27:50
well because many people are simply
27:52
discouraged they would like to get a job
27:54
but they have been looking for a while
27:56
and they haven't found it and it it
27:58
happens that there is a lot more
27:59
discouraged workers during recessions
28:03
and when you're having a big recession
28:05
it's very difficult to find a job so
28:06
it's very easy to get discourage and so
28:09
that's the reason we look at broader
28:10
measures of non-employment than the
28:12
typical unemployment rate because a lot
28:15
of
28:15
those not in the labor force people that
28:18
do not have a job and are not looking
28:19
for a job are really discouraged they
28:21
just give up after a while
28:24
okay the participation rate and that's a
28:27
very important concept something you
28:29
would have ignored most of the time is
28:31
very critical at this moment the
28:33
participation rate is the ratio of the
28:35
labor force to the total population of
28:39
working age and you exclude people you
28:41
know in prison and stuff like that but
28:43
but a so it's label force is which is
28:48
the sum of the employed and the
28:49
unemployed divided by those that could
28:51
work in
28:53
principle okay and that we call that's
28:56
what we call the participation rate
28:59
how do these numbers look I showed you
29:01
this picture in the previous uh lecture
29:05
and that's the unemployment rate it
29:08
skyrocketed during covid but it has
29:10
declined enormously and as I said in the
29:12
previous lecture a big issue is that the
29:15
unemployment rate today is extremely low
29:17
we haven't seen levels like this since
29:18
the early
29:20
60s okay the unemployment rate today is
29:24
at record low levels and that's a
29:26
problem some wonderful but it's also as
29:29
a problem because we have an inflation
29:31
problem and those two things are
29:32
connected as you will learn later on in
29:34
the course okay but that's what we have
29:37
right now that's the unemployment rate
29:39
now the reason the unemployment rate is
29:41
so low there are two reasons really one
29:45
is that there was lots of stimulus
29:47
policy fiscal policy monetary policy so
29:49
aggregate demand and consumers that were
29:51
fed up of being locked out of
29:54
restaurants and trips and so on for two
29:56
years you know decided to travel and so
29:57
on so so and they had lots of
30:00
savings the the US consumer accumulated
30:03
excess saving of $2.7 trillion and now
30:06
they're spending this time China a big
30:08
reason why people expect a big bounce
30:10
back is because they also had a lot of
30:12
savings because they were locked up for
30:14
for quite some time so so as a result of
30:18
that there's lots of demand for goods
30:20
and as you're going to learn in the next
30:22
lecture that means lots of output as
30:24
well H but the second H reason
30:30
is the
30:34
following is the participation rate okay
30:38
people haven't come back to work in the
30:41
magnitudes that we expected so that's a
30:43
participation rate in the US remember
30:46
participation rate is labor force over
30:49
all those that could work in principle
30:51
okay ER what do you think is this look
30:55
at the participation rate used to be in
30:57
the 6 below 60s and then there was a big
31:00
rise in the participation rate in the
31:02
US what do you think is this due
31:05
to women joining work women yeah joining
31:09
the workforce that's what it
31:11
did okay that's that since then since
31:15
just women did all that they had to do
31:16
sort of we have been declining and that
31:18
that's that's an issue but ER but look
31:24
at what happened here lots of people
31:26
exit the labor force during covid I mean
31:28
you know they had to take care of the
31:29
kids and and and or or the elderly and
31:33
so people withdrew from the labor force
31:35
they didn't want a job it was also
31:37
discouraging it was very difficult to
31:38
get a job for iag you work in a
31:41
restaurant it was impossible to get a
31:42
job in a restaurant so but everyone
31:46
expected this to recover to the previous
31:50
level and it hasn't okay so you be you
31:53
see that the participation rate has not
31:55
come back to the levels preo is
31:58
substantially below and that's one of
32:00
the reasons you know that restaurants
32:02
complain that they don't have workers
32:04
and so on so forth is that many people
32:06
haven't come back to a labor force we
32:09
thought this was going to be temporary
32:11
now there's a concern that a lot of that
32:12
is really permanent people decided that
32:15
you know life at home wasn't that bad
32:17
after all less income but but they spend
32:20
more time with the kids or whatever and
32:23
so H ER and that's an issue and that
32:26
that's a big reason behind
32:28
the low unemployment rate and the fact
32:30
that we have all this inflation has to
32:33
do with everyone in particular the fed
32:36
miscalculated the bounce back of of the
32:39
participation
32:42
rate
32:44
good so as I said before we're not going
32:46
to look at labor market issues until
32:49
sort of the second part of the course
32:50
after quiz one and the same is for
32:53
inflation we're not going to look at
32:54
inflation issues until the second part
32:57
of of the course because to connect them
33:00
I mean I they are connected and we're
33:02
not going to look at Labor markets until
33:05
sort of a lecture from now or so okay
33:08
but let's look at but this is an
33:09
important variable and certainly
33:10
something you're facing every single day
33:11
in the newspapers and so on the
33:13
inflation rate so by inflation when you
33:16
hear inflation that typically means the
33:19
sustained rise in the general level of
33:22
prices so it's not that the price of
33:24
cars went up relative to the price of
33:25
hotels or now down price hotel is that
33:29
on average prices are rising that's what
33:31
we call an inflation
33:34
inflation um so we're going to call the
33:38
price level PT and there are many
33:41
different price levels all you see so
33:43
the inflation rate when you hear the
33:45
inflation rate is the rate of change of
33:48
that price
33:50
level an episode of
33:52
deflation the opposite of what we're
33:54
experiencing now where we're exper
33:56
inflation is when that inflation rate is
33:59
negative Japan most prominently has
34:02
experienced something like that not now
34:04
but experienced it for on and off for
34:06
the last three decades or so um so what
34:11
is the price level there are many ways
34:12
of defining it and then there many
34:14
different price levels a very popular
34:16
one is what is called the GDP deflator
34:20
and it's the one you see Le you is never
34:22
mentioned in the newspapers okay but we
34:24
economists tend to look at the deflator
34:26
the deflator is nothing else than the
34:27
ratio of nominal GDP to real GDP another
34:31
one is far more popular and more
34:33
relevant for you as consumers is what we
34:35
call the Consumer Price Index that's the
34:38
CPI you hear CPI that's what it is so
34:42
it's it's it's it's you calculate the
34:44
rate of inflation from the CPI you
34:45
calculate the same way but you use a CPI
34:48
there instead of the GDP deflator now it
34:52
turns
34:53
out H that obviously confused with it it
34:57
turns out that these two measures are
34:58
sort of pretty well aligned okay there
35:01
are differences that may be interesting
35:02
at some specific point in time but they
35:04
tell you more or less the same picture
35:06
in particular there is absolutely no
35:08
doubt that we have an inflation problem
35:10
these days you can be as selective as
35:12
you want with the price index you want
35:13
to use and people are getting very
35:15
selective now we have CPI
35:18
excluding
35:20
ER well one thing that that makes a lot
35:23
of sense is to exclude the most volatile
35:25
Goods so typically the CPI we we use
35:28
what called core CPI which removes
35:30
energy and food which are very volatile
35:33
prices you don't want the thing to be
35:34
moving all over the place but now we're
35:36
also beginning to remove shelter because
35:38
shelter inflation is very high and
35:40
sticky and so on so so people can get to
35:42
be very selective but no matter how you
35:44
look at the thing we have a problem okay
35:47
that there's no way around that so
35:49
that's the the way again we're not going
35:51
to look we're going to talk a lot about
35:53
this problem of course but we need to
35:56
build tools and and we're going to get
35:58
there in about nine lectures from now
36:00
okay nine lectures from now we're going
36:02
to be able to talk about what what is
36:03
going on in with Ms I mean you can talk
36:06
whenever you want but with
36:08
Ms okay so that those are the concepts I
36:11
wanted to discuss today those are the
36:13
definitions and relief that we got over
36:15
this stuff let me just show you we have
36:17
five minutes or
36:19
so
36:20
er equivalent numbers for other places
36:24
around the world that's
36:25
China okay
36:28
that's China That's GDP growth for China
36:31
and there are several things you can see
36:32
from for this GDP series the first is
36:36
that it was very high this these numbers
36:38
look a lot on average it's a lot higher
36:40
than the US when I show you the US you
36:42
know the rate of growth was moving
36:43
around 2% one and a half perc blah blah
36:45
blah occasionally recessions and so on
36:47
this is China look you had you know
36:50
numbers like 10% or so that's
36:52
interesting we want to know why is that
36:55
you can have so much difference in
36:57
different countries okay and and that's
37:00
what we're going to do in the third part
37:01
of the course when we look at growth
37:03
we're going to look at these kind of
37:05
factors what can give you sustained rate
37:07
of growth sustain I mean for a long
37:10
period of time higher than in another
37:12
country the the main factor just to
37:16
preview what will happen is is
37:19
H is simply that China was a lot poorer
37:23
than the us at the beginning and when
37:25
you're poorer and you put your act
37:27
together you can grow a lot faster than
37:29
the rest now China is slowing down aside
37:33
from covid it's very clear for quite
37:35
some time that they have been worried
37:37
because clearly GDP growth is
37:41
declining okay and and and they're
37:44
terrified about that and and and many of
37:46
the things that are happening with China
37:48
have to do with the fear Associated to
37:52
uh slow down in the rate of growth when
37:54
they are still quite poor in per
37:58
terms okay so that's a lot of what
38:01
happens in China has to do with
38:04
that if you look at Japan look at Japan
38:08
Japan also grew very fast in the 60s
38:12
okay you see this very fast rate of
38:15
growth then it began to slow down and
38:18
pom here collapse they have a massive
38:20
crash in the in in in financial markets
38:23
equities and land the price of land was
38:26
enormous in Japan at this time it had a
38:27
big Financial
38:29
bubble you know for those of you that
38:31
know Japan or if you don't know it
38:32
doesn't matter there's a the Imperial
38:34
Park in Tokyo which is a park that is
38:36
much smaller than Central Park or
38:38
whatever the value of that land at some
38:40
point in time was the same as the value
38:42
of the entire State of California okay
38:45
that's the order of magnitude it was not
38:47
for sale but you know in terms of
38:49
location times price but that's that
38:52
bubble crash and since then Japan has
38:55
never been able to recover its modu okay
38:57
it has been sort of growing at a very
38:59
low rate for a very long period of time
39:02
and one of the things that scares China
39:04
is that this may happen to them because
39:08
this happened to Japan when they were
39:09
already quite Rich Japan was pretty poor
39:11
after the war naturally and they grew
39:13
very fast in the 60s but then they had
39:16
this issue Financial bubble and so on
39:18
they crashing had never been able to
39:20
recover and China is worried that you
39:23
know that this slowdown happens to them
39:25
ER before they have acquire reached sort
39:28
of the level of income per capita that
39:31
Japan reach when that
39:34
happened they common factors behind the
39:36
two of them as well demographic factors
39:38
demographics are very negative for both
39:40
of them and which naturally will slow
39:42
down the rate of growth we're going to
39:43
look at that later this is inflation in
39:47
Japan H you see sort of the most
39:49
countries had high inflation around
39:51
there because the the were the price of
39:54
oil they with massive oil shocks and so
39:56
on so inflation was pretty high but the
39:58
problem of Japan has been the opposite
40:01
since the bubble crash in the late 80s
40:04
early 990s they have had very low
40:07
inflation
40:09
H even deflation and that's been a big
40:12
problem part of the reason why they have
40:15
had so low growth is because they have
40:17
been in this deflationary trap and then
40:19
you something you will will look at
40:21
later on in the course when when you
40:23
have deflation it's pretty it's very
40:26
difficult to use monetary policy to get
40:27
out of a recession and that's the reason
40:30
they keep getting a stack
40:32
there so that's all I wanted to say for
40:34
today and I'm relief again that this
40:36
lecture is behind us in the next lecture
40:38
we're going to introduce the first model
40:40
what we're going to look at is is H is
40:43
how to determine equilibrium GDP and how
40:45
that depends on on the a variety of
40:49
things including fiscal policy not
40:51
monetary policy that will happen later
40:54
um but uh how scared you are consumers
40:58
preferences and fears and so on so
41:01
that's the plan so unless there are any
41:03
questions about
41:05
this
41:07
no so see you next Monday
— end of transcript —
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