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