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I expect that there will be many fun

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lectures in the sense that we're going

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to have you know we're going to be

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discussing a little more exactly at the

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right time in which that issue is an is

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an important issue at least as D in the

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newspapers and you know we live in we

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are going through a very interesting

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time for microeconomist inflation is

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unusually high something needs to be

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done about that er um we still have

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problems on the supply side of the

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economy as a result of CO as a result of

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the slow reopening of

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China um we have a war going on which is

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affecting also the price of energy and

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it's particularly impacting Europe and

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all these things are the situation is

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very fluid all of them can change at at

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any moment and uh and policy makers are

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s therefore paying very close attention

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to all these things it's not a normal

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time if you're a policy maker

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macroeconomist microeconomist policy

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maker uh you you are not sleeping a lot

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on these days and so so I expect that we

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will have plenty of time to discuss

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interesting things and analyze them um

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at a slightly higher level than you can

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do at this moment now I also told you in

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the previous in the introduction that

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that this particular

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lecture is not going to be of that kind

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you know it's going to be very boring in

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the sense that you know we need to start

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with definitions and and and I don't

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know who likes definitions I don't it's

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very boring now there is an interesting

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or a curious side of the definitions

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we're going to discuss which which is

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that if you were taking 1401

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microeconomics many of the concepts

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we're going to describe require no

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definition they're obvious I mean if you

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I ask you for output of a factory that

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produces cars it's pretty obvious that

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it's a number of cars if I ask you for

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the prices of those cars is pretty

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obvious what the price of a car is not

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so for macro because if I ask you what

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is the output of the US economy well

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there's millions of goods and services

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are produced at the same time so so what

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do we mean by output a single measure of

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output or if I ask you about the price

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level or the inflation the rate at which

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that price level is changing well what

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are we talking about it's very easy to

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see where the price of a car is going up

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but if we're mixing sort of millions of

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different goods and services then it's a

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little harder and that's the reason we

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need this lecture because it's it's a

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little harder than 1401 and we need to

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Define basic things but they have a

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trick because you're suming apples and

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oranges not only apples and oranges

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apples oranges health services financial

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services all of them in in one piece and

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so so it's a little trickier and that's

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the reason we need this boring lecture

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we need to go through

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that slightly trickier definition of

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output prices and so

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on

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ER okay so let me let me start with the

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most basic thing aggregate output at the

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end of the day when where the econom is

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in a recession or not and so we don't

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like it or we do like it depends on what

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is happening to Output is output growing

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at the pace it used to grow is it

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growing less or it's declining well

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that's very important for macro and to

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understand the health of an economy the

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microeconomic health of an economy but

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we need to start by defining what we

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mean by

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output and because it's a tricky thing

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to do when you're adding so many apples

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oranges Financial Services ER

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entertainment and lots of things that

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are very different H it wasn't there we

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didn't have a good way of doing that in

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fact the national accounts as we know

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them in the US is something that we have

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since the post-war period in in the late

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40s that we develop the technique the

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approach to come up with a measure of

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our output before that we had measures

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proxies you know industrial production

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is very high I meaning we're producing

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lots of cars stuff like that and

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somebody but something systematic like

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we have today is a pretty recent uh

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thing okay we call that NEPA the

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national income and product

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account income and product that's going

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to be very important for macro as you'll

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see in a minute um so the main measure

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of aggregate output is what we call

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gross domestic product or simply GDP you

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hear GDP that means output of an economy

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why is gross and not net you're not

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going to worry about that in this course

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okay but that's you hear

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GDP most microeconomist wouldn't say

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output they would say GDP it's very

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short it's efficient and so on well

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that's what it means it's the output of

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an economy but how do we Define it as I

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said before it's much harder than when

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you have an individual

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good by the way I will be most of the

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time I will say

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Goods but really is goods and services

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but it's very long to say goods and

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services no so whenever I say Goods I'm

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not trying to play any trick on you I

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really mean goods and services I just

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mean lazy okay and most people are lazy

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that way okay now what is the difference

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between goods and services you you're

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not going to worry a lot about that in

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this no you're not going to worry at all

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about that in this course but just to

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get a sense goods are things that you

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know that are tangible services are

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things that are not that tangible there

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are benefits that you receive from the

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task that someone else operates on you

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so you go to the to you know the medical

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center you don't come up with a piece of

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a machine to well they may lend you

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something but but you don't come out

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with an objective you come out with the

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service provided by a doctor to you okay

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and the same happens if you go to a bank

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you don't come with a ATM with you what

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you come up with is the service of

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having done a transaction or deposit or

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go on a mortgage or something like that

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it's a service if you go to a

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restaurant again you don't what you can

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what you have is an experience it's a

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people provided an experience to you

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things are a little tricky because if

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you do a take out well is that an

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experience or is really the goods so so

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if you get into those details which

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you're not going to get it gets to be

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tricky but but but just to get a

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sense on average a consumer in the US

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two third of the consumption is in

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services not in Goods it's not sort of

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the banana and so on that you buy it's a

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lot of the financial services health

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services and entertainment and things

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like that traveling that's what you

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spend most of your time having clarified

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that you can of forget that from now on

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I'm going to say Goods occasionally may

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say goods and services but I always mean

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the same okay good so um so how do we

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measure these things so well there there

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are different ways ER of of of doing

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this something happened to my slide

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there okay there we

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are um so suppose that you have a an

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economy that is very simple I don't need

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to tell you how simple this economy is

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it has just two

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firms okay suppose we have an economy

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that's very simple has two firms one

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firm produces a steel and the other one

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produces cars and the company that

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produces cars buys all the steel from

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the company no body you as a consumer

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don't buy you don't buy steel directly

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the car company buys a steel uses to

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produce a car and you buy the car okay

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so that's our simple economy and that's

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those are the the accounts of the of the

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simple economy so there you have company

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one has a revenue from sales it sells

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$100 okay so price of steel times steel

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is

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$100 the second company H uses B is Ste

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uses workers and sells

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$200 no so the question I ask you the

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first question I ask you here is well

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what is the GDP of this economy here you

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have an economy that has two goods

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needless to say a real economy is a lot

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more complicated than this but you have

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two companies and I ask you what is

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GDP so the obvious things that you could

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come up with is well I Su all the

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revenues okay so that's the obvious one

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the total GDP of these economies is 300

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that's a sensible

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answer okay at least at this moment I

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would accept that as a sensible answer

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in the quiz I wouldn't but here it's a

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sensible answer I mean well you ask me

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for what is the total output of that

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economy I sum up all the revenues on

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sales and that's

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300 okay so so um is it

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300 well or is it 200 I mean that's

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another you says well look only the

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final goods perhaps should count because

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you know this is the only thing that you

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as a consumer will ever see this part

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not that those are two sensible answers

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and what I'll show you in three

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different ways is that the right answer

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is 200 for that economy okay not 300 the

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right answer is

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200 so method

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one H and all these methods are used and

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they use to check each other H to

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compute H

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GDP uh so method one is what I said here

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is final goods you said

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GDP is the value of the final goods and

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services producing the economy during a

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given period of time notice that GDP is

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a concept of a flow it's something you

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produce in a year okay that's the reason

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you say GDP of the US in 2022 was you

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know 23 23 trillion dollar is in a year

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okay it's a it's a period of time okay

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so so that's one definition and one way

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of of of er

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of making sense of this definition is

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imagine that I give you the same economy

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with the same two factories and now all

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of a sudden I tell you you know what I'm

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going to merge the two companies so

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company the car company will buy the

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steel meal or whatever

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well if I now put together those two

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accounts now I never see the steel

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because it that's all happening inside

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the the factory and it's still the case

257
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that the economy would be producing 200

258
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Cars and all that you would see is 200

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no because I would put this thing

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together there was a steel that this

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company had purchased from that but now

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it's all inside okay so so if I put them

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together then that steel there doesn't

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appear because it's all produced inhouse

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and now GDP would be 200 well it makes

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no sense

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that just because I change the ownership

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structure of the companies that your GDP

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changes collapses from 300 to 200 if I

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only measuring final goods though I

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don't have that problem it's still 200

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doesn't matter that I have the merge

273
00:11:44,200 --> 00:11:48,480
slice and LIC in 20 or whatever so

274
00:11:46,759 --> 00:11:49,958
that's that tells you that that's we're

275
00:11:48,480 --> 00:11:53,120
going the right way here because you

276
00:11:49,958 --> 00:11:54,679
know it's it's a very robust answer that

277
00:11:53,120 --> 00:11:56,799
is you don't count intermediate output

278
00:11:54,679 --> 00:11:59,319
you only count the final goods which are

279
00:11:56,799 --> 00:12:01,359
the things that the consumer will buy

280
00:11:59,320 --> 00:12:03,720
buy the firms will buy for investment

281
00:12:01,360 --> 00:12:05,639
and things of that kind that foreigners

282
00:12:03,720 --> 00:12:09,839
will

283
00:12:05,639 --> 00:12:11,278
buy alternative method is GDP is the sum

284
00:12:09,839 --> 00:12:13,600
of value

285
00:12:11,278 --> 00:12:17,399
added in the economy during a given

286
00:12:13,600 --> 00:12:19,639
period of time what is value added the

287
00:12:17,399 --> 00:12:21,278
difference between final the final goods

288
00:12:19,639 --> 00:12:23,079
produced by a company and the

289
00:12:21,278 --> 00:12:24,838
intermediate inputs it purchased to

290
00:12:23,078 --> 00:12:28,039
produce those

291
00:12:24,839 --> 00:12:30,959
goods okay so what is the value added of

292
00:12:28,039 --> 00:12:33,120
the steel company here

293
00:12:30,958 --> 00:12:36,198
it's the answer is there but you know

294
00:12:33,120 --> 00:12:38,000
but what is the value added it's 100 how

295
00:12:36,198 --> 00:12:40,359
do I know it's 100 well because it's not

296
00:12:38,000 --> 00:12:41,879
buying any intermediate input and the

297
00:12:40,360 --> 00:12:45,000
revenue is

298
00:12:41,879 --> 00:12:47,879
100 okay so that's the reason I get 100

299
00:12:45,000 --> 00:12:50,639
there okay 100 there's no intermediate

300
00:12:47,879 --> 00:12:53,759
input what is the value added of the car

301
00:12:50,639 --> 00:12:55,600
company well the revenue on sales is 200

302
00:12:53,759 --> 00:12:59,278
but it purchase 100 in intermediate

303
00:12:55,600 --> 00:13:01,800
inputs so the value is 200 minus 100 the

304
00:12:59,278 --> 00:13:04,958
value out of this company is 100 100

305
00:13:01,799 --> 00:13:07,039
plus 100 I get my 200 again

306
00:13:04,958 --> 00:13:11,198
yep

307
00:13:07,039 --> 00:13:12,958
consider wages to be in really good no

308
00:13:11,198 --> 00:13:14,958
that's those are not Goods those are

309
00:13:12,958 --> 00:13:17,838
factors of

310
00:13:14,958 --> 00:13:19,599
production okay so this and the same

311
00:13:17,839 --> 00:13:21,440
there are machines in that factory that

312
00:13:19,600 --> 00:13:23,519
are helping you produce things that's a

313
00:13:21,440 --> 00:13:24,760
service of the machine it's Capital

314
00:13:23,519 --> 00:13:27,039
that's not an intermediate input an

315
00:13:24,759 --> 00:13:29,559
intermediate input is another good or

316
00:13:27,039 --> 00:13:33,240
service that you buy for the the purpose

317
00:13:29,559 --> 00:13:36,119
of producing that that good

318
00:13:33,240 --> 00:13:38,959
okay so workers is not workers are

319
00:13:36,120 --> 00:13:41,679
working inside your company and so on if

320
00:13:38,958 --> 00:13:43,679
the work was if the work was produced

321
00:13:41,679 --> 00:13:45,519
was outsourced and you had another

322
00:13:43,679 --> 00:13:47,559
company that produces something that you

323
00:13:45,519 --> 00:13:48,759
use from those workers that would be an

324
00:13:47,559 --> 00:13:50,159
intermediate input but you would have to

325
00:13:48,759 --> 00:13:53,000
count the value out of the other of the

326
00:13:50,159 --> 00:13:56,639
companies you have outsourced too you

327
00:13:53,000 --> 00:13:59,078
see so that's method two two and you see

328
00:13:56,639 --> 00:14:00,839
we get exactly at 200 those two method

329
00:13:59,078 --> 00:14:02,078
methods are called production methods

330
00:14:00,839 --> 00:14:04,800
there are different ways of measuring

331
00:14:02,078 --> 00:14:08,239
the production of the economy the third

332
00:14:04,799 --> 00:14:12,198
method and the last one is an income

333
00:14:08,240 --> 00:14:15,320
method which means look all that is

334
00:14:12,198 --> 00:14:17,559
produced has to be earned by someone the

335
00:14:15,320 --> 00:14:20,160
workers the owners of capital somebody

336
00:14:17,559 --> 00:14:23,758
has to own that if the firms sell

337
00:14:20,159 --> 00:14:26,480
collectively $200 those $200 have to be

338
00:14:23,759 --> 00:14:28,839
allocated to someone someone means

339
00:14:26,480 --> 00:14:32,000
workers the owners of capital of the

340
00:14:28,839 --> 00:14:33,920
first Ms or in realistic economies the

341
00:14:32,000 --> 00:14:35,519
government you pay taxes and things of

342
00:14:33,919 --> 00:14:37,078
that kind okay we're not going to worry

343
00:14:35,519 --> 00:14:39,560
about the government for a

344
00:14:37,078 --> 00:14:42,000
while so that's an alternative method

345
00:14:39,559 --> 00:14:44,039
it's method three you just sum the

346
00:14:42,000 --> 00:14:45,399
incomes so who are the factors of

347
00:14:44,039 --> 00:14:47,480
productions here related to your

348
00:14:45,399 --> 00:14:50,320
question in this there is no government

349
00:14:47,480 --> 00:14:52,519
here no taxes so we have only workers

350
00:14:50,320 --> 00:14:57,000
and profits you the capital the owners

351
00:14:52,519 --> 00:15:02,639
of the Company wages is 80 + 70 is

352
00:14:57,000 --> 00:15:05,198
150 profits is 20 + 30 50 150 in wages

353
00:15:02,639 --> 00:15:07,759
plus 50 in profit gives you back your

354
00:15:05,198 --> 00:15:09,359
200 okay so those are the three ways we

355
00:15:07,759 --> 00:15:10,919
have of measuring these things and you

356
00:15:09,360 --> 00:15:13,240
see they give you exactly the same

357
00:15:10,919 --> 00:15:15,319
result now there is

358
00:15:13,240 --> 00:15:16,680
something as I as I from the

359
00:15:15,320 --> 00:15:18,879
construction of national account there

360
00:15:16,679 --> 00:15:22,638
is something interesting in what I just

361
00:15:18,879 --> 00:15:23,919
said which is look I can that production

362
00:15:22,639 --> 00:15:26,120
is the same as

363
00:15:23,919 --> 00:15:29,519
income that's going to be very important

364
00:15:26,120 --> 00:15:32,120
for macro very important for macro

365
00:15:29,519 --> 00:15:34,679
and it's totally unimportant for

366
00:15:32,120 --> 00:15:36,720
micro when you're looking at a company

367
00:15:34,679 --> 00:15:38,559
for example in micro and you're looking

368
00:15:36,720 --> 00:15:41,759
at a car company by

369
00:15:38,559 --> 00:15:44,958
itself it is true that you know the

370
00:15:41,759 --> 00:15:46,399
output of that company becomes income

371
00:15:44,958 --> 00:15:49,879
part for the owners of the company and

372
00:15:46,399 --> 00:15:53,480
part for the workers but that income

373
00:15:49,879 --> 00:15:56,559
needs not be spent in cars can spend in

374
00:15:53,480 --> 00:15:57,240
food entertainment and whatever not so

375
00:15:56,559 --> 00:15:59,359
in

376
00:15:57,240 --> 00:16:01,399
macro because what else you going to

377
00:15:59,360 --> 00:16:04,039
spend it to than in the same good that

378
00:16:01,399 --> 00:16:06,600
you're producing in the aggregate good

379
00:16:04,039 --> 00:16:08,679
so it's very interesting that's a very

380
00:16:06,600 --> 00:16:10,920
distinctive feature of micro that is not

381
00:16:08,679 --> 00:16:12,278
present in micro is that that income has

382
00:16:10,919 --> 00:16:14,120
to be spent in the same Goods if the

383
00:16:12,278 --> 00:16:15,360
econom is closed later on we're going to

384
00:16:14,120 --> 00:16:16,600
open the economy to the rest of the

385
00:16:15,360 --> 00:16:18,480
world and then you get you buy some

386
00:16:16,600 --> 00:16:21,600
Chinese goods and blah blah blah but if

387
00:16:18,480 --> 00:16:23,600
you keep it close hey you are not going

388
00:16:21,600 --> 00:16:24,800
to buy cars that's what you work on but

389
00:16:23,600 --> 00:16:26,240
you're going to have to buy it in the

390
00:16:24,799 --> 00:16:28,439
single good of the

391
00:16:26,240 --> 00:16:30,198
economy which is the sum of all the

392
00:16:28,440 --> 00:16:32,000
goods that we we consume an average

393
00:16:30,198 --> 00:16:35,000
that's going to be very

394
00:16:32,000 --> 00:16:37,159
important anyways this time is this

395
00:16:35,000 --> 00:16:39,078
stuff move in the right direction okay

396
00:16:37,159 --> 00:16:41,958
so that's that's that's that now you

397
00:16:39,078 --> 00:16:44,000
know what GDP is and the different ways

398
00:16:41,958 --> 00:16:45,119
of measuring you're going to have to

399
00:16:44,000 --> 00:16:49,639
remember that

400
00:16:45,120 --> 00:16:51,078
for for p set one and for quiz one and

401
00:16:49,639 --> 00:16:52,278
you might as well forget it for the

402
00:16:51,078 --> 00:16:53,638
future it's good that you understand the

403
00:16:52,278 --> 00:16:55,919
concept but it's different ways of

404
00:16:53,639 --> 00:16:58,039
constructing is not very

405
00:16:55,919 --> 00:16:59,399
important second thing we need to worry

406
00:16:58,039 --> 00:17:01,519
about

407
00:16:59,399 --> 00:17:03,240
is that whenever you're thinking about

408
00:17:01,519 --> 00:17:05,199
the output of an economy you're really

409
00:17:03,240 --> 00:17:06,959
trying to think about the real output

410
00:17:05,199 --> 00:17:09,120
meaning number of cars and number of

411
00:17:06,959 --> 00:17:11,240
machines and so on but you have

412
00:17:09,119 --> 00:17:13,359
inflation for example then prices of

413
00:17:11,240 --> 00:17:16,599
these things are growing and so the

414
00:17:13,359 --> 00:17:18,198
total revenue on sales is growing but

415
00:17:16,599 --> 00:17:20,399
they don't mean the same and we want to

416
00:17:18,199 --> 00:17:22,000
certainly separate these two things and

417
00:17:20,400 --> 00:17:25,400
for that reason we have a concept which

418
00:17:22,000 --> 00:17:28,199
is called nominal GDP and another one

419
00:17:25,400 --> 00:17:30,559
which is called real GDP nominal GDP is

420
00:17:28,199 --> 00:17:32,120
the simplest thing on Earth is

421
00:17:30,558 --> 00:17:34,119
essentially you know we had only one

422
00:17:32,119 --> 00:17:36,959
final goods company there which was cars

423
00:17:34,119 --> 00:17:39,519
but mind you have cars refrigerators

424
00:17:36,960 --> 00:17:41,440
many many things nominal GDP simply you

425
00:17:39,519 --> 00:17:44,200
sum all the final goods and you multiply

426
00:17:41,440 --> 00:17:46,600
them by the the current price and that

427
00:17:44,200 --> 00:17:48,000
gives you the dollar GDP that you have I

428
00:17:46,599 --> 00:17:51,000
don't know what it is in the US today

429
00:17:48,000 --> 00:17:55,759
you could check it but it's $24

430
00:17:51,000 --> 00:17:57,759
trillion a so that's it P * Q you know

431
00:17:55,759 --> 00:17:59,679
prices times quantity and you sum across

432
00:17:57,759 --> 00:18:01,480
all the final goods

433
00:17:59,679 --> 00:18:04,120
that's we have to that's one way of

434
00:18:01,480 --> 00:18:06,839
calculating thing that's nominal GDP but

435
00:18:04,119 --> 00:18:09,119
again what we really care about is we're

436
00:18:06,839 --> 00:18:10,959
going to get a lot about later on is how

437
00:18:09,119 --> 00:18:13,519
that econom is doing over time is it

438
00:18:10,960 --> 00:18:15,840
growing is it not growing nominal GDP

439
00:18:13,519 --> 00:18:18,599
can grow for two different reasons can

440
00:18:15,839 --> 00:18:20,199
grow because the economy is really

441
00:18:18,599 --> 00:18:23,319
becoming more productive is producing

442
00:18:20,200 --> 00:18:26,200
more Goods or because prices are going

443
00:18:23,319 --> 00:18:28,119
up now at this moment real nominal GDP

444
00:18:26,200 --> 00:18:29,600
is growing very fast in the US despite

445
00:18:28,119 --> 00:18:32,239
the fact that we may have recession this

446
00:18:29,599 --> 00:18:34,119
year we don't know but nobody has any

447
00:18:32,240 --> 00:18:36,120
doubt that nominal GDP will grow because

448
00:18:34,119 --> 00:18:38,119
we have lots of inflation and so you

449
00:18:36,119 --> 00:18:40,798
want to separate these two things and

450
00:18:38,119 --> 00:18:43,918
the thing that removes the inflation

451
00:18:40,798 --> 00:18:47,200
component is what we call real

452
00:18:43,919 --> 00:18:50,200
GDP and real GDP if you hear the word

453
00:18:47,200 --> 00:18:51,440
only GDP and and that was produced by

454
00:18:50,200 --> 00:18:54,558
somebody understand what he's talking

455
00:18:51,440 --> 00:18:57,120
about GDP really means real GDP okay if

456
00:18:54,558 --> 00:18:59,359
you just hear GDP people are try is

457
00:18:57,119 --> 00:19:03,918
trying to say the output of the economy

458
00:18:59,359 --> 00:19:07,678
well that's real GDP and the real GDP is

459
00:19:03,919 --> 00:19:11,200
computed many tricks but but essentially

460
00:19:07,679 --> 00:19:13,880
what you do is you consume you you you

461
00:19:11,200 --> 00:19:16,519
you also sum across all the

462
00:19:13,880 --> 00:19:19,280
goods you also Su across the goods but

463
00:19:16,519 --> 00:19:21,240
you use constant prices not the prices

464
00:19:19,279 --> 00:19:23,319
of that point in time

465
00:19:21,240 --> 00:19:25,798
necessarily okay so I'm going to give

466
00:19:23,319 --> 00:19:27,798
you a very concrete example but before

467
00:19:25,798 --> 00:19:30,480
doing that for this course we're going

468
00:19:27,798 --> 00:19:31,599
to call nominal GDP and all nominal

469
00:19:30,480 --> 00:19:33,440
variables are going to have that's what

470
00:19:31,599 --> 00:19:35,839
the textbook does they're going to have

471
00:19:33,440 --> 00:19:38,798
a dollar sign in front so that's our

472
00:19:35,839 --> 00:19:40,959
measure that's nominal GDP GDP is going

473
00:19:38,798 --> 00:19:43,480
to be Y without the dollar that's real

474
00:19:40,960 --> 00:19:46,120
GDP okay for the first part of the

475
00:19:43,480 --> 00:19:47,440
course up to quiz one we're we're going

476
00:19:46,119 --> 00:19:49,038
very we're going to worry very little

477
00:19:47,440 --> 00:19:51,759
about nominal things because we want to

478
00:19:49,038 --> 00:19:53,798
have prices completely fixed but but you

479
00:19:51,759 --> 00:19:59,759
still need to know the concept and

480
00:19:53,798 --> 00:19:59,759
that's real GDP so now let me give you

481
00:20:01,759 --> 00:20:07,480
an example so suppose you have this this

482
00:20:05,240 --> 00:20:09,000
this the simple economy we had before

483
00:20:07,480 --> 00:20:11,360
we're just going to look at final goods

484
00:20:09,000 --> 00:20:15,480
because that's what we need to look

485
00:20:11,359 --> 00:20:17,319
at to con to construct GDP and so this

486
00:20:15,480 --> 00:20:21,159
economy produces cars and supposedly

487
00:20:17,319 --> 00:20:26,038
produces 10 cars in 2011 12 cars in

488
00:20:21,159 --> 00:20:28,000
2012 and 13 cars in in 2013 but suppos

489
00:20:26,038 --> 00:20:30,480
the price of a car is what you see there

490
00:20:28,000 --> 00:20:33,839
20,000 24,000 and

491
00:20:30,480 --> 00:20:36,640
26,000 nominal GDP is simply the

492
00:20:33,839 --> 00:20:37,918
product you know of this times that that

493
00:20:36,640 --> 00:20:41,080
gives you

494
00:20:37,919 --> 00:20:43,759
$200,000 12 cars times $25,000 gives you

495
00:20:41,079 --> 00:20:45,918
288 and so on that's nominal

496
00:20:43,759 --> 00:20:48,240
GDP real

497
00:20:45,919 --> 00:20:51,080
GDP you have to

498
00:20:48,240 --> 00:20:54,038
pick which price you want to use but

499
00:20:51,079 --> 00:20:57,519
only use one and don't vary it over time

500
00:20:54,038 --> 00:20:59,480
okay so in this particular case we pick

501
00:20:57,519 --> 00:21:01,879
2012

502
00:20:59,480 --> 00:21:06,839
okay so that means when you say GD real

503
00:21:01,880 --> 00:21:08,440
GDP at 20 2012 2012 base 2012 or at 2012

504
00:21:06,839 --> 00:21:11,399
prices means that you're using the

505
00:21:08,440 --> 00:21:13,440
prices of 2012 you don't bury that you

506
00:21:11,400 --> 00:21:16,080
let quantities change over time but the

507
00:21:13,440 --> 00:21:17,840
prices remain fixed so in this case real

508
00:21:16,079 --> 00:21:22,960
GDP at

509
00:21:17,839 --> 00:21:25,000
$22 is you know is 10 cars times 25,000

510
00:21:22,960 --> 00:21:29,120
that give you 240,000

511
00:21:25,000 --> 00:21:30,679
12 cars time 24,000 28

512
00:21:29,119 --> 00:21:32,918
this is interesting for this year

513
00:21:30,679 --> 00:21:34,559
nominal GDP is the same as real GDP why

514
00:21:32,919 --> 00:21:37,960
is

515
00:21:34,558 --> 00:21:37,960
that it's an

516
00:21:40,759 --> 00:21:45,440
accident exactly we're using that's a

517
00:21:43,038 --> 00:21:48,319
base year so that's nominal GDP will

518
00:21:45,440 --> 00:21:50,120
always be equal to real GDP at the base

519
00:21:48,319 --> 00:21:51,839
year that's the Year we're picking as

520
00:21:50,119 --> 00:21:53,278
the base know because those are the

521
00:21:51,839 --> 00:21:57,359
prices we're

522
00:21:53,278 --> 00:22:02,200
using I what about 2013 well is is not

523
00:21:57,359 --> 00:22:04,240
26,000 * 13 is 24, 1013 so we get 312

524
00:22:02,200 --> 00:22:07,600
and it's obvious here that real GDP is

525
00:22:04,240 --> 00:22:09,759
growing less than nominal GDP why is

526
00:22:07,599 --> 00:22:12,199
that well because this economy has

527
00:22:09,759 --> 00:22:13,839
inflation prices are rising over time

528
00:22:12,200 --> 00:22:16,000
and we want to remove that when we want

529
00:22:13,839 --> 00:22:19,119
to look at the real concept the real

530
00:22:16,000 --> 00:22:19,119
concept removes the price

531
00:22:19,759 --> 00:22:24,000
effect there are times in which you

532
00:22:22,000 --> 00:22:26,038
don't want to remove all that price

533
00:22:24,000 --> 00:22:28,480
effect and it happens a lot for example

534
00:22:26,038 --> 00:22:30,359
in computers because sometimes the

535
00:22:28,480 --> 00:22:32,440
increase in the price of the computer is

536
00:22:30,359 --> 00:22:33,839
simply because the computer is better

537
00:22:32,440 --> 00:22:35,720
and and you want to correct for quality

538
00:22:33,839 --> 00:22:41,199
and so on but again that's not something

539
00:22:35,720 --> 00:22:41,200
you need to worry about in this course

540
00:22:42,200 --> 00:22:46,960
okay maybe some of you deciding the pace

541
00:22:44,960 --> 00:22:50,400
which you want me to move I'm really

542
00:22:46,960 --> 00:22:52,319
puzzled by this stuff here this is this

543
00:22:50,400 --> 00:22:55,080
is from the book and you see what

544
00:22:52,319 --> 00:22:58,200
happened in in the US with nominal and

545
00:22:55,079 --> 00:23:00,599
real GDP with base year 2012 so as I

546
00:22:58,200 --> 00:23:03,400
said before these two curves one is

547
00:23:00,599 --> 00:23:06,798
nominal GDP the red line the blue line

548
00:23:03,400 --> 00:23:09,159
is real GDP we're using Bas year 2012 so

549
00:23:06,798 --> 00:23:12,960
at that point they have to be the same

550
00:23:09,159 --> 00:23:17,919
and what you see very very clearly there

551
00:23:12,960 --> 00:23:20,440
is that a the Blue Line real GDP is

552
00:23:17,919 --> 00:23:24,120
flatter than the red line why is

553
00:23:20,440 --> 00:23:24,120
that why is it

554
00:23:27,440 --> 00:23:31,480
yeah is inflation see yeah by the way I

555
00:23:29,880 --> 00:23:33,440
do have a reference for you so ask me

556
00:23:31,480 --> 00:23:37,079
after the okay

557
00:23:33,440 --> 00:23:40,240
good um anyway so yeah in the US between

558
00:23:37,079 --> 00:23:43,119
1916 and 2018 real nominal GDP increased

559
00:23:40,240 --> 00:23:45,679
by a factor of 38 while real GDP by a

560
00:23:43,119 --> 00:23:47,678
factor of 5.7 big difference so so you

561
00:23:45,679 --> 00:23:49,600
better be careful when when you look at

562
00:23:47,679 --> 00:23:51,080
GDP that you are removing inflation

563
00:23:49,599 --> 00:23:52,000
especially in I mean if you were to look

564
00:23:51,079 --> 00:23:53,918
in

565
00:23:52,000 --> 00:23:55,720
Argentina these guys have had a

566
00:23:53,919 --> 00:23:58,120
recession a chronic recession for a long

567
00:23:55,720 --> 00:24:00,240
time big recessions but nominal GDP is

568
00:23:58,119 --> 00:24:05,000
explo clothing because they have 10,000%

569
00:24:00,240 --> 00:24:05,000
inflation so so so it makes a big

570
00:24:05,919 --> 00:24:11,960
difference especially over

571
00:24:09,038 --> 00:24:13,839
time this is just so you get the picture

572
00:24:11,960 --> 00:24:16,558
the complete picture for the US this is

573
00:24:13,839 --> 00:24:19,399
a GDP growth in the US since we have

574
00:24:16,558 --> 00:24:21,639
national accounts okay and some

575
00:24:19,400 --> 00:24:23,640
noticeable things well again

576
00:24:21,640 --> 00:24:25,520
recessions this was a big recession

577
00:24:23,640 --> 00:24:29,600
remember we call this the Great

578
00:24:25,519 --> 00:24:32,240
Recession big recession and well this is

579
00:24:29,599 --> 00:24:34,759
covid and then this is 2020 and then

580
00:24:32,240 --> 00:24:36,440
they bounce back in 2021 when we reopen

581
00:24:34,759 --> 00:24:38,038
the economy big growth but that's very

582
00:24:36,440 --> 00:24:41,120
anomalous I mean that's a very weird

583
00:24:38,038 --> 00:24:43,480
shock okay but that's a you see these

584
00:24:41,119 --> 00:24:46,839
are all the shaded areas are

585
00:24:43,480 --> 00:24:48,759
recessions recessions are defined in a

586
00:24:46,839 --> 00:24:52,439
slightly more complicated way than that

587
00:24:48,759 --> 00:24:55,038
but one sort of er popular way of

588
00:24:52,440 --> 00:24:57,320
describing ression is as episode where

589
00:24:55,038 --> 00:24:59,359
you have two consecutive quarters of

590
00:24:57,319 --> 00:25:01,879
negative inflation that's not the formal

591
00:24:59,359 --> 00:25:05,319
definition of res but it's pretty close

592
00:25:01,880 --> 00:25:06,919
okay and so so that's that's what you

593
00:25:05,319 --> 00:25:10,200
have

594
00:25:06,919 --> 00:25:13,159
there another concept is an employment

595
00:25:10,200 --> 00:25:14,519
rate the unemployment rate so that's GDP

596
00:25:13,159 --> 00:25:16,080
and we're going to the in the first part

597
00:25:14,519 --> 00:25:18,398
of the course we want to worry a lot

598
00:25:16,079 --> 00:25:22,359
about that we're going to build a model

599
00:25:18,398 --> 00:25:23,558
on how to find equilibrium H GDP okay

600
00:25:22,359 --> 00:25:25,959
and we're going to see what happens with

601
00:25:23,558 --> 00:25:28,278
fiscal policy with monetary policy how

602
00:25:25,960 --> 00:25:31,278
how does equilibrium GDP macroeconomic

603
00:25:28,278 --> 00:25:33,960
EIC output changes with different forms

604
00:25:31,278 --> 00:25:37,640
of policies or when consumers get scared

605
00:25:33,960 --> 00:25:37,640
or stuff like that

606
00:25:38,159 --> 00:25:41,960
okay what about the unemployment rate

607
00:25:40,558 --> 00:25:44,639
the unemployment rate is not something

608
00:25:41,960 --> 00:25:46,600
we want to worry a lot about until the

609
00:25:44,640 --> 00:25:48,159
second part of the course after quiz one

610
00:25:46,599 --> 00:25:48,959
but I still I want to get over with

611
00:25:48,159 --> 00:25:51,960
these

612
00:25:48,960 --> 00:25:53,840
definitions so what is employment is a

613
00:25:51,960 --> 00:25:57,120
number of people who have a job that's

614
00:25:53,839 --> 00:25:59,519
easy unemployment is slightly less easy

615
00:25:57,119 --> 00:26:00,839
because it's first of all obviously to

616
00:25:59,519 --> 00:26:03,720
be an employee you don't have to have a

617
00:26:00,839 --> 00:26:06,278
you cannot have a job so but it's not

618
00:26:03,720 --> 00:26:08,759
enough that you don't have a

619
00:26:06,278 --> 00:26:10,880
job is an

620
00:26:08,759 --> 00:26:13,480
unemployed person is somebody that

621
00:26:10,880 --> 00:26:16,039
doesn't have a job and is looking for

622
00:26:13,480 --> 00:26:18,720
one

623
00:26:16,038 --> 00:26:21,599
okay not all unemployed people look for

624
00:26:18,720 --> 00:26:22,558
your job not all non-employed people are

625
00:26:21,599 --> 00:26:26,759
looking for

626
00:26:22,558 --> 00:26:29,200
jobs okay so un to be unemployed you

627
00:26:26,759 --> 00:26:32,599
need to not have a job and be looking

628
00:26:29,200 --> 00:26:34,519
for one the labor force what we call the

629
00:26:32,599 --> 00:26:37,879
labor force is the sum of those two

630
00:26:34,519 --> 00:26:39,639
groups the employed and the unemployed

631
00:26:37,880 --> 00:26:41,360
that would like to get a

632
00:26:39,640 --> 00:26:44,720
job

633
00:26:41,359 --> 00:26:45,918
okay the unemployment rate which is

634
00:26:44,720 --> 00:26:48,079
something I showed you in the previous

635
00:26:45,919 --> 00:26:50,520
lecture is just a ratio of these two

636
00:26:48,079 --> 00:26:53,678
concepts the unemployed over the labor

637
00:26:50,519 --> 00:26:55,839
force notice over the labor force not

638
00:26:53,679 --> 00:26:58,880
population the labor force which is a

639
00:26:55,839 --> 00:27:01,158
sum of the employed and those that are

640
00:26:58,880 --> 00:27:04,640
unemployed that do not have a job and

641
00:27:01,159 --> 00:27:04,640
are looking for a job

642
00:27:05,640 --> 00:27:11,840
okay how how is an employment measure in

643
00:27:09,000 --> 00:27:15,200
the US is mostly a survey and I have the

644
00:27:11,839 --> 00:27:17,278
the the info there it's called the CPS

645
00:27:15,200 --> 00:27:20,038
the current population survey that

646
00:27:17,278 --> 00:27:21,880
consults lots of households and they ask

647
00:27:20,038 --> 00:27:23,119
them about the employment status whether

648
00:27:21,880 --> 00:27:25,559
they have been looking for a job over

649
00:27:23,119 --> 00:27:27,479
the last two weeks or not and so on and

650
00:27:25,558 --> 00:27:30,480
that's the way we come up with with the

651
00:27:27,480 --> 00:27:32,038
number as as I said before H those that

652
00:27:30,480 --> 00:27:33,919
do not have a job but are not looking

653
00:27:32,038 --> 00:27:36,278
for a job they haven't been looking for

654
00:27:33,919 --> 00:27:38,480
a job in the last two weeks are called

655
00:27:36,278 --> 00:27:41,278
not in the labor force that's that's

656
00:27:38,480 --> 00:27:44,038
what we say now these concepts are

657
00:27:41,278 --> 00:27:47,640
between an employed and not in the labor

658
00:27:44,038 --> 00:27:49,079
force is it's not not that clear we we

659
00:27:47,640 --> 00:27:50,640
we look at the employment rate but we

660
00:27:49,079 --> 00:27:52,240
also tend to look at those people as

661
00:27:50,640 --> 00:27:54,320
well because many people are simply

662
00:27:52,240 --> 00:27:56,038
discouraged they would like to get a job

663
00:27:54,319 --> 00:27:58,359
but they have been looking for a while

664
00:27:56,038 --> 00:27:59,919
and they haven't found it and it it

665
00:27:58,359 --> 00:28:03,639
happens that there is a lot more

666
00:27:59,919 --> 00:28:05,159
discouraged workers during recessions

667
00:28:03,640 --> 00:28:06,720
and when you're having a big recession

668
00:28:05,159 --> 00:28:09,440
it's very difficult to find a job so

669
00:28:06,720 --> 00:28:10,839
it's very easy to get discourage and so

670
00:28:09,440 --> 00:28:12,840
that's the reason we look at broader

671
00:28:10,839 --> 00:28:15,038
measures of non-employment than the

672
00:28:12,839 --> 00:28:15,798
typical unemployment rate because a lot

673
00:28:15,038 --> 00:28:18,440
of

674
00:28:15,798 --> 00:28:19,879
those not in the labor force people that

675
00:28:18,440 --> 00:28:21,519
do not have a job and are not looking

676
00:28:19,880 --> 00:28:24,760
for a job are really discouraged they

677
00:28:21,519 --> 00:28:27,759
just give up after a while

678
00:28:24,759 --> 00:28:29,440
okay the participation rate and that's a

679
00:28:27,759 --> 00:28:31,158
very important concept something you

680
00:28:29,440 --> 00:28:33,320
would have ignored most of the time is

681
00:28:31,159 --> 00:28:35,640
very critical at this moment the

682
00:28:33,319 --> 00:28:39,158
participation rate is the ratio of the

683
00:28:35,640 --> 00:28:41,480
labor force to the total population of

684
00:28:39,159 --> 00:28:43,960
working age and you exclude people you

685
00:28:41,480 --> 00:28:48,000
know in prison and stuff like that but

686
00:28:43,960 --> 00:28:49,558
but a so it's label force is which is

687
00:28:48,000 --> 00:28:51,798
the sum of the employed and the

688
00:28:49,558 --> 00:28:53,240
unemployed divided by those that could

689
00:28:51,798 --> 00:28:56,278
work in

690
00:28:53,240 --> 00:28:59,519
principle okay and that we call that's

691
00:28:56,278 --> 00:29:01,398
what we call the participation rate

692
00:28:59,519 --> 00:29:05,679
how do these numbers look I showed you

693
00:29:01,398 --> 00:29:08,000
this picture in the previous uh lecture

694
00:29:05,679 --> 00:29:10,000
and that's the unemployment rate it

695
00:29:08,000 --> 00:29:12,278
skyrocketed during covid but it has

696
00:29:10,000 --> 00:29:15,200
declined enormously and as I said in the

697
00:29:12,278 --> 00:29:17,200
previous lecture a big issue is that the

698
00:29:15,200 --> 00:29:18,880
unemployment rate today is extremely low

699
00:29:17,200 --> 00:29:20,880
we haven't seen levels like this since

700
00:29:18,880 --> 00:29:24,039
the early

701
00:29:20,880 --> 00:29:26,880
60s okay the unemployment rate today is

702
00:29:24,038 --> 00:29:29,558
at record low levels and that's a

703
00:29:26,880 --> 00:29:31,320
problem some wonderful but it's also as

704
00:29:29,558 --> 00:29:32,798
a problem because we have an inflation

705
00:29:31,319 --> 00:29:34,439
problem and those two things are

706
00:29:32,798 --> 00:29:37,079
connected as you will learn later on in

707
00:29:34,440 --> 00:29:39,120
the course okay but that's what we have

708
00:29:37,079 --> 00:29:41,759
right now that's the unemployment rate

709
00:29:39,119 --> 00:29:45,278
now the reason the unemployment rate is

710
00:29:41,759 --> 00:29:47,480
so low there are two reasons really one

711
00:29:45,278 --> 00:29:49,839
is that there was lots of stimulus

712
00:29:47,480 --> 00:29:51,558
policy fiscal policy monetary policy so

713
00:29:49,839 --> 00:29:54,240
aggregate demand and consumers that were

714
00:29:51,558 --> 00:29:56,240
fed up of being locked out of

715
00:29:54,240 --> 00:29:57,798
restaurants and trips and so on for two

716
00:29:56,240 --> 00:30:00,120
years you know decided to travel and so

717
00:29:57,798 --> 00:30:03,038
on so so and they had lots of

718
00:30:00,119 --> 00:30:06,000
savings the the US consumer accumulated

719
00:30:03,038 --> 00:30:08,599
excess saving of $2.7 trillion and now

720
00:30:06,000 --> 00:30:10,278
they're spending this time China a big

721
00:30:08,599 --> 00:30:12,240
reason why people expect a big bounce

722
00:30:10,278 --> 00:30:14,839
back is because they also had a lot of

723
00:30:12,240 --> 00:30:18,000
savings because they were locked up for

724
00:30:14,839 --> 00:30:20,720
for quite some time so so as a result of

725
00:30:18,000 --> 00:30:22,119
that there's lots of demand for goods

726
00:30:20,720 --> 00:30:24,480
and as you're going to learn in the next

727
00:30:22,119 --> 00:30:29,959
lecture that means lots of output as

728
00:30:24,480 --> 00:30:29,960
well H but the second H reason

729
00:30:30,679 --> 00:30:33,880
is the

730
00:30:34,278 --> 00:30:41,038
following is the participation rate okay

731
00:30:38,558 --> 00:30:43,119
people haven't come back to work in the

732
00:30:41,038 --> 00:30:46,000
magnitudes that we expected so that's a

733
00:30:43,119 --> 00:30:49,158
participation rate in the US remember

734
00:30:46,000 --> 00:30:51,960
participation rate is labor force over

735
00:30:49,159 --> 00:30:55,919
all those that could work in principle

736
00:30:51,960 --> 00:30:57,519
okay ER what do you think is this look

737
00:30:55,919 --> 00:31:00,399
at the participation rate used to be in

738
00:30:57,519 --> 00:31:02,759
the 6 below 60s and then there was a big

739
00:31:00,398 --> 00:31:05,798
rise in the participation rate in the

740
00:31:02,759 --> 00:31:09,359
US what do you think is this due

741
00:31:05,798 --> 00:31:11,440
to women joining work women yeah joining

742
00:31:09,359 --> 00:31:15,038
the workforce that's what it

743
00:31:11,440 --> 00:31:16,639
did okay that's that since then since

744
00:31:15,038 --> 00:31:18,879
just women did all that they had to do

745
00:31:16,638 --> 00:31:24,479
sort of we have been declining and that

746
00:31:18,880 --> 00:31:26,559
that's that's an issue but ER but look

747
00:31:24,480 --> 00:31:28,558
at what happened here lots of people

748
00:31:26,558 --> 00:31:29,759
exit the labor force during covid I mean

749
00:31:28,558 --> 00:31:33,319
you know they had to take care of the

750
00:31:29,759 --> 00:31:35,240
kids and and and or or the elderly and

751
00:31:33,319 --> 00:31:37,439
so people withdrew from the labor force

752
00:31:35,240 --> 00:31:38,960
they didn't want a job it was also

753
00:31:37,440 --> 00:31:41,000
discouraging it was very difficult to

754
00:31:38,960 --> 00:31:42,558
get a job for iag you work in a

755
00:31:41,000 --> 00:31:46,720
restaurant it was impossible to get a

756
00:31:42,558 --> 00:31:50,000
job in a restaurant so but everyone

757
00:31:46,720 --> 00:31:53,440
expected this to recover to the previous

758
00:31:50,000 --> 00:31:55,599
level and it hasn't okay so you be you

759
00:31:53,440 --> 00:31:58,360
see that the participation rate has not

760
00:31:55,599 --> 00:32:00,319
come back to the levels preo is

761
00:31:58,359 --> 00:32:02,638
substantially below and that's one of

762
00:32:00,319 --> 00:32:04,079
the reasons you know that restaurants

763
00:32:02,638 --> 00:32:06,798
complain that they don't have workers

764
00:32:04,079 --> 00:32:09,519
and so on so forth is that many people

765
00:32:06,798 --> 00:32:11,000
haven't come back to a labor force we

766
00:32:09,519 --> 00:32:12,759
thought this was going to be temporary

767
00:32:11,000 --> 00:32:15,079
now there's a concern that a lot of that

768
00:32:12,759 --> 00:32:17,879
is really permanent people decided that

769
00:32:15,079 --> 00:32:20,918
you know life at home wasn't that bad

770
00:32:17,880 --> 00:32:23,240
after all less income but but they spend

771
00:32:20,919 --> 00:32:26,519
more time with the kids or whatever and

772
00:32:23,240 --> 00:32:28,720
so H ER and that's an issue and that

773
00:32:26,519 --> 00:32:30,798
that's a big reason behind

774
00:32:28,720 --> 00:32:33,120
the low unemployment rate and the fact

775
00:32:30,798 --> 00:32:36,359
that we have all this inflation has to

776
00:32:33,119 --> 00:32:39,319
do with everyone in particular the fed

777
00:32:36,359 --> 00:32:42,000
miscalculated the bounce back of of the

778
00:32:39,319 --> 00:32:42,000
participation

779
00:32:42,278 --> 00:32:46,839
rate

780
00:32:44,319 --> 00:32:49,038
good so as I said before we're not going

781
00:32:46,839 --> 00:32:50,918
to look at labor market issues until

782
00:32:49,038 --> 00:32:53,759
sort of the second part of the course

783
00:32:50,919 --> 00:32:54,960
after quiz one and the same is for

784
00:32:53,759 --> 00:32:57,440
inflation we're not going to look at

785
00:32:54,960 --> 00:33:00,919
inflation issues until the second part

786
00:32:57,440 --> 00:33:02,840
of of the course because to connect them

787
00:33:00,919 --> 00:33:05,038
I mean I they are connected and we're

788
00:33:02,839 --> 00:33:08,079
not going to look at Labor markets until

789
00:33:05,038 --> 00:33:09,200
sort of a lecture from now or so okay

790
00:33:08,079 --> 00:33:10,359
but let's look at but this is an

791
00:33:09,200 --> 00:33:11,840
important variable and certainly

792
00:33:10,359 --> 00:33:13,599
something you're facing every single day

793
00:33:11,839 --> 00:33:16,638
in the newspapers and so on the

794
00:33:13,599 --> 00:33:19,519
inflation rate so by inflation when you

795
00:33:16,638 --> 00:33:22,839
hear inflation that typically means the

796
00:33:19,519 --> 00:33:24,319
sustained rise in the general level of

797
00:33:22,839 --> 00:33:25,959
prices so it's not that the price of

798
00:33:24,319 --> 00:33:29,480
cars went up relative to the price of

799
00:33:25,960 --> 00:33:31,558
hotels or now down price hotel is that

800
00:33:29,480 --> 00:33:34,240
on average prices are rising that's what

801
00:33:31,558 --> 00:33:38,558
we call an inflation

802
00:33:34,240 --> 00:33:41,759
inflation um so we're going to call the

803
00:33:38,558 --> 00:33:43,879
price level PT and there are many

804
00:33:41,759 --> 00:33:45,720
different price levels all you see so

805
00:33:43,880 --> 00:33:48,278
the inflation rate when you hear the

806
00:33:45,720 --> 00:33:50,120
inflation rate is the rate of change of

807
00:33:48,278 --> 00:33:52,759
that price

808
00:33:50,119 --> 00:33:54,599
level an episode of

809
00:33:52,759 --> 00:33:56,119
deflation the opposite of what we're

810
00:33:54,599 --> 00:33:59,480
experiencing now where we're exper

811
00:33:56,119 --> 00:34:02,239
inflation is when that inflation rate is

812
00:33:59,480 --> 00:34:04,278
negative Japan most prominently has

813
00:34:02,240 --> 00:34:06,798
experienced something like that not now

814
00:34:04,278 --> 00:34:11,119
but experienced it for on and off for

815
00:34:06,798 --> 00:34:12,480
the last three decades or so um so what

816
00:34:11,119 --> 00:34:14,358
is the price level there are many ways

817
00:34:12,480 --> 00:34:16,440
of defining it and then there many

818
00:34:14,358 --> 00:34:20,000
different price levels a very popular

819
00:34:16,440 --> 00:34:22,280
one is what is called the GDP deflator

820
00:34:20,000 --> 00:34:24,760
and it's the one you see Le you is never

821
00:34:22,280 --> 00:34:26,320
mentioned in the newspapers okay but we

822
00:34:24,760 --> 00:34:27,760
economists tend to look at the deflator

823
00:34:26,320 --> 00:34:31,960
the deflator is nothing else than the

824
00:34:27,760 --> 00:34:33,720
ratio of nominal GDP to real GDP another

825
00:34:31,960 --> 00:34:35,918
one is far more popular and more

826
00:34:33,719 --> 00:34:38,559
relevant for you as consumers is what we

827
00:34:35,918 --> 00:34:42,158
call the Consumer Price Index that's the

828
00:34:38,559 --> 00:34:44,279
CPI you hear CPI that's what it is so

829
00:34:42,159 --> 00:34:45,919
it's it's it's it's you calculate the

830
00:34:44,280 --> 00:34:48,480
rate of inflation from the CPI you

831
00:34:45,918 --> 00:34:52,039
calculate the same way but you use a CPI

832
00:34:48,480 --> 00:34:53,119
there instead of the GDP deflator now it

833
00:34:52,039 --> 00:34:57,039
turns

834
00:34:53,119 --> 00:34:58,920
out H that obviously confused with it it

835
00:34:57,039 --> 00:35:01,079
turns out that these two measures are

836
00:34:58,920 --> 00:35:02,838
sort of pretty well aligned okay there

837
00:35:01,079 --> 00:35:04,920
are differences that may be interesting

838
00:35:02,838 --> 00:35:06,519
at some specific point in time but they

839
00:35:04,920 --> 00:35:08,240
tell you more or less the same picture

840
00:35:06,519 --> 00:35:10,079
in particular there is absolutely no

841
00:35:08,239 --> 00:35:12,479
doubt that we have an inflation problem

842
00:35:10,079 --> 00:35:13,920
these days you can be as selective as

843
00:35:12,480 --> 00:35:15,920
you want with the price index you want

844
00:35:13,920 --> 00:35:18,760
to use and people are getting very

845
00:35:15,920 --> 00:35:20,440
selective now we have CPI

846
00:35:18,760 --> 00:35:23,119
excluding

847
00:35:20,440 --> 00:35:25,320
ER well one thing that that makes a lot

848
00:35:23,119 --> 00:35:28,200
of sense is to exclude the most volatile

849
00:35:25,320 --> 00:35:30,838
Goods so typically the CPI we we use

850
00:35:28,199 --> 00:35:33,039
what called core CPI which removes

851
00:35:30,838 --> 00:35:34,119
energy and food which are very volatile

852
00:35:33,039 --> 00:35:36,679
prices you don't want the thing to be

853
00:35:34,119 --> 00:35:38,880
moving all over the place but now we're

854
00:35:36,679 --> 00:35:40,639
also beginning to remove shelter because

855
00:35:38,880 --> 00:35:42,599
shelter inflation is very high and

856
00:35:40,639 --> 00:35:44,078
sticky and so on so so people can get to

857
00:35:42,599 --> 00:35:47,039
be very selective but no matter how you

858
00:35:44,079 --> 00:35:49,200
look at the thing we have a problem okay

859
00:35:47,039 --> 00:35:51,838
that there's no way around that so

860
00:35:49,199 --> 00:35:53,399
that's the the way again we're not going

861
00:35:51,838 --> 00:35:56,119
to look we're going to talk a lot about

862
00:35:53,400 --> 00:35:58,280
this problem of course but we need to

863
00:35:56,119 --> 00:36:00,480
build tools and and we're going to get

864
00:35:58,280 --> 00:36:02,040
there in about nine lectures from now

865
00:36:00,480 --> 00:36:03,960
okay nine lectures from now we're going

866
00:36:02,039 --> 00:36:06,719
to be able to talk about what what is

867
00:36:03,960 --> 00:36:08,720
going on in with Ms I mean you can talk

868
00:36:06,719 --> 00:36:11,159
whenever you want but with

869
00:36:08,719 --> 00:36:13,159
Ms okay so that those are the concepts I

870
00:36:11,159 --> 00:36:15,318
wanted to discuss today those are the

871
00:36:13,159 --> 00:36:17,879
definitions and relief that we got over

872
00:36:15,318 --> 00:36:19,079
this stuff let me just show you we have

873
00:36:17,880 --> 00:36:20,599
five minutes or

874
00:36:19,079 --> 00:36:24,119
so

875
00:36:20,599 --> 00:36:25,720
er equivalent numbers for other places

876
00:36:24,119 --> 00:36:28,480
around the world that's

877
00:36:25,719 --> 00:36:31,318
China okay

878
00:36:28,480 --> 00:36:32,800
that's China That's GDP growth for China

879
00:36:31,318 --> 00:36:36,000
and there are several things you can see

880
00:36:32,800 --> 00:36:38,000
from for this GDP series the first is

881
00:36:36,000 --> 00:36:40,318
that it was very high this these numbers

882
00:36:38,000 --> 00:36:42,358
look a lot on average it's a lot higher

883
00:36:40,318 --> 00:36:43,719
than the US when I show you the US you

884
00:36:42,358 --> 00:36:45,880
know the rate of growth was moving

885
00:36:43,719 --> 00:36:47,959
around 2% one and a half perc blah blah

886
00:36:45,880 --> 00:36:50,000
blah occasionally recessions and so on

887
00:36:47,960 --> 00:36:52,920
this is China look you had you know

888
00:36:50,000 --> 00:36:55,880
numbers like 10% or so that's

889
00:36:52,920 --> 00:36:57,599
interesting we want to know why is that

890
00:36:55,880 --> 00:37:00,039
you can have so much difference in

891
00:36:57,599 --> 00:37:01,280
different countries okay and and that's

892
00:37:00,039 --> 00:37:03,400
what we're going to do in the third part

893
00:37:01,280 --> 00:37:05,560
of the course when we look at growth

894
00:37:03,400 --> 00:37:07,160
we're going to look at these kind of

895
00:37:05,559 --> 00:37:10,000
factors what can give you sustained rate

896
00:37:07,159 --> 00:37:12,679
of growth sustain I mean for a long

897
00:37:10,000 --> 00:37:16,239
period of time higher than in another

898
00:37:12,679 --> 00:37:19,159
country the the main factor just to

899
00:37:16,239 --> 00:37:23,078
preview what will happen is is

900
00:37:19,159 --> 00:37:25,679
H is simply that China was a lot poorer

901
00:37:23,079 --> 00:37:27,280
than the us at the beginning and when

902
00:37:25,679 --> 00:37:29,598
you're poorer and you put your act

903
00:37:27,280 --> 00:37:33,480
together you can grow a lot faster than

904
00:37:29,599 --> 00:37:35,400
the rest now China is slowing down aside

905
00:37:33,480 --> 00:37:37,719
from covid it's very clear for quite

906
00:37:35,400 --> 00:37:41,119
some time that they have been worried

907
00:37:37,719 --> 00:37:44,199
because clearly GDP growth is

908
00:37:41,119 --> 00:37:46,800
declining okay and and and they're

909
00:37:44,199 --> 00:37:48,759
terrified about that and and and many of

910
00:37:46,800 --> 00:37:52,240
the things that are happening with China

911
00:37:48,760 --> 00:37:54,599
have to do with the fear Associated to

912
00:37:52,239 --> 00:37:58,358
uh slow down in the rate of growth when

913
00:37:54,599 --> 00:38:01,000
they are still quite poor in per

914
00:37:58,358 --> 00:38:04,279
terms okay so that's a lot of what

915
00:38:01,000 --> 00:38:04,280
happens in China has to do with

916
00:38:04,679 --> 00:38:12,118
that if you look at Japan look at Japan

917
00:38:08,920 --> 00:38:15,240
Japan also grew very fast in the 60s

918
00:38:12,119 --> 00:38:18,240
okay you see this very fast rate of

919
00:38:15,239 --> 00:38:20,719
growth then it began to slow down and

920
00:38:18,239 --> 00:38:23,639
pom here collapse they have a massive

921
00:38:20,719 --> 00:38:26,039
crash in the in in in financial markets

922
00:38:23,639 --> 00:38:27,879
equities and land the price of land was

923
00:38:26,039 --> 00:38:29,079
enormous in Japan at this time it had a

924
00:38:27,880 --> 00:38:31,358
big Financial

925
00:38:29,079 --> 00:38:32,920
bubble you know for those of you that

926
00:38:31,358 --> 00:38:34,559
know Japan or if you don't know it

927
00:38:32,920 --> 00:38:36,720
doesn't matter there's a the Imperial

928
00:38:34,559 --> 00:38:38,358
Park in Tokyo which is a park that is

929
00:38:36,719 --> 00:38:40,679
much smaller than Central Park or

930
00:38:38,358 --> 00:38:42,719
whatever the value of that land at some

931
00:38:40,679 --> 00:38:45,440
point in time was the same as the value

932
00:38:42,719 --> 00:38:47,679
of the entire State of California okay

933
00:38:45,440 --> 00:38:49,480
that's the order of magnitude it was not

934
00:38:47,679 --> 00:38:52,078
for sale but you know in terms of

935
00:38:49,480 --> 00:38:55,079
location times price but that's that

936
00:38:52,079 --> 00:38:57,680
bubble crash and since then Japan has

937
00:38:55,079 --> 00:38:59,440
never been able to recover its modu okay

938
00:38:57,679 --> 00:39:02,559
it has been sort of growing at a very

939
00:38:59,440 --> 00:39:04,760
low rate for a very long period of time

940
00:39:02,559 --> 00:39:08,000
and one of the things that scares China

941
00:39:04,760 --> 00:39:09,359
is that this may happen to them because

942
00:39:08,000 --> 00:39:11,639
this happened to Japan when they were

943
00:39:09,358 --> 00:39:13,799
already quite Rich Japan was pretty poor

944
00:39:11,639 --> 00:39:16,879
after the war naturally and they grew

945
00:39:13,800 --> 00:39:18,680
very fast in the 60s but then they had

946
00:39:16,880 --> 00:39:20,400
this issue Financial bubble and so on

947
00:39:18,679 --> 00:39:23,118
they crashing had never been able to

948
00:39:20,400 --> 00:39:25,960
recover and China is worried that you

949
00:39:23,119 --> 00:39:28,838
know that this slowdown happens to them

950
00:39:25,960 --> 00:39:31,119
ER before they have acquire reached sort

951
00:39:28,838 --> 00:39:34,119
of the level of income per capita that

952
00:39:31,119 --> 00:39:36,559
Japan reach when that

953
00:39:34,119 --> 00:39:38,318
happened they common factors behind the

954
00:39:36,559 --> 00:39:40,039
two of them as well demographic factors

955
00:39:38,318 --> 00:39:42,559
demographics are very negative for both

956
00:39:40,039 --> 00:39:43,719
of them and which naturally will slow

957
00:39:42,559 --> 00:39:47,078
down the rate of growth we're going to

958
00:39:43,719 --> 00:39:49,719
look at that later this is inflation in

959
00:39:47,079 --> 00:39:51,200
Japan H you see sort of the most

960
00:39:49,719 --> 00:39:54,078
countries had high inflation around

961
00:39:51,199 --> 00:39:56,159
there because the the were the price of

962
00:39:54,079 --> 00:39:58,880
oil they with massive oil shocks and so

963
00:39:56,159 --> 00:40:01,759
on so inflation was pretty high but the

964
00:39:58,880 --> 00:40:04,720
problem of Japan has been the opposite

965
00:40:01,760 --> 00:40:07,480
since the bubble crash in the late 80s

966
00:40:04,719 --> 00:40:09,078
early 990s they have had very low

967
00:40:07,480 --> 00:40:12,199
inflation

968
00:40:09,079 --> 00:40:15,160
H even deflation and that's been a big

969
00:40:12,199 --> 00:40:17,598
problem part of the reason why they have

970
00:40:15,159 --> 00:40:19,920
had so low growth is because they have

971
00:40:17,599 --> 00:40:21,640
been in this deflationary trap and then

972
00:40:19,920 --> 00:40:23,960
you something you will will look at

973
00:40:21,639 --> 00:40:26,199
later on in the course when when you

974
00:40:23,960 --> 00:40:27,880
have deflation it's pretty it's very

975
00:40:26,199 --> 00:40:30,000
difficult to use monetary policy to get

976
00:40:27,880 --> 00:40:32,000
out of a recession and that's the reason

977
00:40:30,000 --> 00:40:34,318
they keep getting a stack

978
00:40:32,000 --> 00:40:36,559
there so that's all I wanted to say for

979
00:40:34,318 --> 00:40:38,960
today and I'm relief again that this

980
00:40:36,559 --> 00:40:40,519
lecture is behind us in the next lecture

981
00:40:38,960 --> 00:40:43,519
we're going to introduce the first model

982
00:40:40,519 --> 00:40:45,759
what we're going to look at is is H is

983
00:40:43,519 --> 00:40:49,519
how to determine equilibrium GDP and how

984
00:40:45,760 --> 00:40:51,720
that depends on on the a variety of

985
00:40:49,519 --> 00:40:54,599
things including fiscal policy not

986
00:40:51,719 --> 00:40:58,598
monetary policy that will happen later

987
00:40:54,599 --> 00:41:01,680
um but uh how scared you are consumers

988
00:40:58,599 --> 00:41:03,318
preferences and fears and so on so

989
00:41:01,679 --> 00:41:05,440
that's the plan so unless there are any

990
00:41:03,318 --> 00:41:07,159
questions about

991
00:41:05,440 --> 00:41:12,400
this

992
00:41:07,159 --> 00:41:12,399
no so see you next Monday