WEBVTT

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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

00:09:59.039 --> 00:10:04.439
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

00:10:08.159 --> 00:10:14.679
is final goods you said

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GDP is the value of the final goods and

00:10:14.679 --> 00:10:19.479
services producing the economy during a

00:10:17.078 --> 00:10:21.120
given period of time notice that GDP is

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a concept of a flow it's something you

00:10:21.120 --> 00:10:27.919
produce in a year okay that's the reason

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you say GDP of the US in 2022 was you

00:10:27.919 --> 00:10:34.360
know 23 23 trillion dollar is in a year

00:10:31.399 --> 00:10:38.559
okay it's a it's a period of time okay

00:10:34.360 --> 00:10:42.200
so so that's one definition and one way

00:10:38.559 --> 00:10:45.679
of of of er

00:10:42.200 --> 00:10:48.200
of making sense of this definition is

00:10:45.679 --> 00:10:50.359
imagine that I give you the same economy

00:10:48.200 --> 00:10:52.519
with the same two factories and now all

00:10:50.360 --> 00:10:54.839
of a sudden I tell you you know what I'm

00:10:52.519 --> 00:10:56.440
going to merge the two companies so

00:10:54.839 --> 00:10:59.360
company the car company will buy the

00:10:56.440 --> 00:11:01.560
steel meal or whatever

00:10:59.360 --> 00:11:03.278
well if I now put together those two

00:11:01.559 --> 00:11:04.638
accounts now I never see the steel

00:11:03.278 --> 00:11:07.320
because it that's all happening inside

00:11:04.639 --> 00:11:09.079
the the factory and it's still the case

00:11:07.320 --> 00:11:12.639
that the economy would be producing 200

00:11:09.078 --> 00:11:14.359
Cars and all that you would see is 200

00:11:12.639 --> 00:11:16.200
no because I would put this thing

00:11:14.360 --> 00:11:17.720
together there was a steel that this

00:11:16.200 --> 00:11:21.240
company had purchased from that but now

00:11:17.720 --> 00:11:23.399
it's all inside okay so so if I put them

00:11:21.240 --> 00:11:26.120
together then that steel there doesn't

00:11:23.399 --> 00:11:28.600
appear because it's all produced inhouse

00:11:26.120 --> 00:11:29.839
and now GDP would be 200 well it makes

00:11:28.600 --> 00:11:32.440
no sense

00:11:29.839 --> 00:11:34.680
that just because I change the ownership

00:11:32.440 --> 00:11:38.079
structure of the companies that your GDP

00:11:34.679 --> 00:11:39.879
changes collapses from 300 to 200 if I

00:11:38.078 --> 00:11:42.599
only measuring final goods though I

00:11:39.879 --> 00:11:44.200
don't have that problem it's still 200

00:11:42.600 --> 00:11:46.759
doesn't matter that I have the merge

00:11:44.200 --> 00:11:48.480
slice and LIC in 20 or whatever so

00:11:46.759 --> 00:11:49.958
that's that tells you that that's we're

00:11:48.480 --> 00:11:53.120
going the right way here because you

00:11:49.958 --> 00:11:54.679
know it's it's a very robust answer that

00:11:53.120 --> 00:11:56.799
is you don't count intermediate output

00:11:54.679 --> 00:11:59.319
you only count the final goods which are

00:11:56.799 --> 00:12:01.359
the things that the consumer will buy

00:11:59.320 --> 00:12:03.720
buy the firms will buy for investment

00:12:01.360 --> 00:12:05.639
and things of that kind that foreigners

00:12:03.720 --> 00:12:09.839
will

00:12:05.639 --> 00:12:11.278
buy alternative method is GDP is the sum

00:12:09.839 --> 00:12:13.600
of value

00:12:11.278 --> 00:12:17.399
added in the economy during a given

00:12:13.600 --> 00:12:19.639
period of time what is value added the

00:12:17.399 --> 00:12:21.278
difference between final the final goods

00:12:19.639 --> 00:12:23.079
produced by a company and the

00:12:21.278 --> 00:12:24.838
intermediate inputs it purchased to

00:12:23.078 --> 00:12:28.039
produce those

00:12:24.839 --> 00:12:30.959
goods okay so what is the value added of

00:12:28.039 --> 00:12:33.120
the steel company here

00:12:30.958 --> 00:12:36.198
it's the answer is there but you know

00:12:33.120 --> 00:12:38.000
but what is the value added it's 100 how

00:12:36.198 --> 00:12:40.359
do I know it's 100 well because it's not

00:12:38.000 --> 00:12:41.879
buying any intermediate input and the

00:12:40.360 --> 00:12:45.000
revenue is

00:12:41.879 --> 00:12:47.879
100 okay so that's the reason I get 100

00:12:45.000 --> 00:12:50.639
there okay 100 there's no intermediate

00:12:47.879 --> 00:12:53.759
input what is the value added of the car

00:12:50.639 --> 00:12:55.600
company well the revenue on sales is 200

00:12:53.759 --> 00:12:59.278
but it purchase 100 in intermediate

00:12:55.600 --> 00:13:01.800
inputs so the value is 200 minus 100 the

00:12:59.278 --> 00:13:04.958
value out of this company is 100 100

00:13:01.799 --> 00:13:07.039
plus 100 I get my 200 again

00:13:04.958 --> 00:13:11.198
yep

00:13:07.039 --> 00:13:12.958
consider wages to be in really good no

00:13:11.198 --> 00:13:14.958
that's those are not Goods those are

00:13:12.958 --> 00:13:17.838
factors of

00:13:14.958 --> 00:13:19.599
production okay so this and the same

00:13:17.839 --> 00:13:21.440
there are machines in that factory that

00:13:19.600 --> 00:13:23.519
are helping you produce things that's a

00:13:21.440 --> 00:13:24.760
service of the machine it's Capital

00:13:23.519 --> 00:13:27.039
that's not an intermediate input an

00:13:24.759 --> 00:13:29.559
intermediate input is another good or

00:13:27.039 --> 00:13:33.240
service that you buy for the the purpose

00:13:29.559 --> 00:13:36.119
of producing that that good

00:13:33.240 --> 00:13:38.959
okay so workers is not workers are

00:13:36.120 --> 00:13:41.679
working inside your company and so on if

00:13:38.958 --> 00:13:43.679
the work was if the work was produced

00:13:41.679 --> 00:13:45.519
was outsourced and you had another

00:13:43.679 --> 00:13:47.559
company that produces something that you

00:13:45.519 --> 00:13:48.759
use from those workers that would be an

00:13:47.559 --> 00:13:50.159
intermediate input but you would have to

00:13:48.759 --> 00:13:53.000
count the value out of the other of the

00:13:50.159 --> 00:13:56.639
companies you have outsourced too you

00:13:53.000 --> 00:13:59.078
see so that's method two two and you see

00:13:56.639 --> 00:14:00.839
we get exactly at 200 those two method

00:13:59.078 --> 00:14:02.078
methods are called production methods

00:14:00.839 --> 00:14:04.800
there are different ways of measuring

00:14:02.078 --> 00:14:08.239
the production of the economy the third

00:14:04.799 --> 00:14:12.198
method and the last one is an income

00:14:08.240 --> 00:14:15.320
method which means look all that is

00:14:12.198 --> 00:14:17.559
produced has to be earned by someone the

00:14:15.320 --> 00:14:20.160
workers the owners of capital somebody

00:14:17.559 --> 00:14:23.758
has to own that if the firms sell

00:14:20.159 --> 00:14:26.480
collectively $200 those $200 have to be

00:14:23.759 --> 00:14:28.839
allocated to someone someone means

00:14:26.480 --> 00:14:32.000
workers the owners of capital of the

00:14:28.839 --> 00:14:33.920
first Ms or in realistic economies the

00:14:32.000 --> 00:14:35.519
government you pay taxes and things of

00:14:33.919 --> 00:14:37.078
that kind okay we're not going to worry

00:14:35.519 --> 00:14:39.560
about the government for a

00:14:37.078 --> 00:14:42.000
while so that's an alternative method

00:14:39.559 --> 00:14:44.039
it's method three you just sum the

00:14:42.000 --> 00:14:45.399
incomes so who are the factors of

00:14:44.039 --> 00:14:47.480
productions here related to your

00:14:45.399 --> 00:14:50.320
question in this there is no government

00:14:47.480 --> 00:14:52.519
here no taxes so we have only workers

00:14:50.320 --> 00:14:57.000
and profits you the capital the owners

00:14:52.519 --> 00:15:02.639
of the Company wages is 80 + 70 is

00:14:57.000 --> 00:15:05.198
150 profits is 20 + 30 50 150 in wages

00:15:02.639 --> 00:15:07.759
plus 50 in profit gives you back your

00:15:05.198 --> 00:15:09.359
200 okay so those are the three ways we

00:15:07.759 --> 00:15:10.919
have of measuring these things and you

00:15:09.360 --> 00:15:13.240
see they give you exactly the same

00:15:10.919 --> 00:15:15.319
result now there is

00:15:13.240 --> 00:15:16.680
something as I as I from the

00:15:15.320 --> 00:15:18.879
construction of national account there

00:15:16.679 --> 00:15:22.638
is something interesting in what I just

00:15:18.879 --> 00:15:23.919
said which is look I can that production

00:15:22.639 --> 00:15:26.120
is the same as

00:15:23.919 --> 00:15:29.519
income that's going to be very important

00:15:26.120 --> 00:15:32.120
for macro very important for macro

00:15:29.519 --> 00:15:34.679
and it's totally unimportant for

00:15:32.120 --> 00:15:36.720
micro when you're looking at a company

00:15:34.679 --> 00:15:38.559
for example in micro and you're looking

00:15:36.720 --> 00:15:41.759
at a car company by

00:15:38.559 --> 00:15:44.958
itself it is true that you know the

00:15:41.759 --> 00:15:46.399
output of that company becomes income

00:15:44.958 --> 00:15:49.879
part for the owners of the company and

00:15:46.399 --> 00:15:53.480
part for the workers but that income

00:15:49.879 --> 00:15:56.559
needs not be spent in cars can spend in

00:15:53.480 --> 00:15:57.240
food entertainment and whatever not so

00:15:56.559 --> 00:15:59.359
in

00:15:57.240 --> 00:16:01.399
macro because what else you going to

00:15:59.360 --> 00:16:04.039
spend it to than in the same good that

00:16:01.399 --> 00:16:06.600
you're producing in the aggregate good

00:16:04.039 --> 00:16:08.679
so it's very interesting that's a very

00:16:06.600 --> 00:16:10.920
distinctive feature of micro that is not

00:16:08.679 --> 00:16:12.278
present in micro is that that income has

00:16:10.919 --> 00:16:14.120
to be spent in the same Goods if the

00:16:12.278 --> 00:16:15.360
econom is closed later on we're going to

00:16:14.120 --> 00:16:16.600
open the economy to the rest of the

00:16:15.360 --> 00:16:18.480
world and then you get you buy some

00:16:16.600 --> 00:16:21.600
Chinese goods and blah blah blah but if

00:16:18.480 --> 00:16:23.600
you keep it close hey you are not going

00:16:21.600 --> 00:16:24.800
to buy cars that's what you work on but

00:16:23.600 --> 00:16:26.240
you're going to have to buy it in the

00:16:24.799 --> 00:16:28.439
single good of the

00:16:26.240 --> 00:16:30.198
economy which is the sum of all the

00:16:28.440 --> 00:16:32.000
goods that we we consume an average

00:16:30.198 --> 00:16:35.000
that's going to be very

00:16:32.000 --> 00:16:37.159
important anyways this time is this

00:16:35.000 --> 00:16:39.078
stuff move in the right direction okay

00:16:37.159 --> 00:16:41.958
so that's that's that's that now you

00:16:39.078 --> 00:16:44.000
know what GDP is and the different ways

00:16:41.958 --> 00:16:45.119
of measuring you're going to have to

00:16:44.000 --> 00:16:49.639
remember that

00:16:45.120 --> 00:16:51.078
for for p set one and for quiz one and

00:16:49.639 --> 00:16:52.278
you might as well forget it for the

00:16:51.078 --> 00:16:53.638
future it's good that you understand the

00:16:52.278 --> 00:16:55.919
concept but it's different ways of

00:16:53.639 --> 00:16:58.039
constructing is not very

00:16:55.919 --> 00:16:59.399
important second thing we need to worry

00:16:58.039 --> 00:17:01.519
about

00:16:59.399 --> 00:17:03.240
is that whenever you're thinking about

00:17:01.519 --> 00:17:05.199
the output of an economy you're really

00:17:03.240 --> 00:17:06.959
trying to think about the real output

00:17:05.199 --> 00:17:09.120
meaning number of cars and number of

00:17:06.959 --> 00:17:11.240
machines and so on but you have

00:17:09.119 --> 00:17:13.359
inflation for example then prices of

00:17:11.240 --> 00:17:16.599
these things are growing and so the

00:17:13.359 --> 00:17:18.198
total revenue on sales is growing but

00:17:16.599 --> 00:17:20.399
they don't mean the same and we want to

00:17:18.199 --> 00:17:22.000
certainly separate these two things and

00:17:20.400 --> 00:17:25.400
for that reason we have a concept which

00:17:22.000 --> 00:17:28.199
is called nominal GDP and another one

00:17:25.400 --> 00:17:30.559
which is called real GDP nominal GDP is

00:17:28.199 --> 00:17:32.120
the simplest thing on Earth is

00:17:30.558 --> 00:17:34.119
essentially you know we had only one

00:17:32.119 --> 00:17:36.959
final goods company there which was cars

00:17:34.119 --> 00:17:39.519
but mind you have cars refrigerators

00:17:36.960 --> 00:17:41.440
many many things nominal GDP simply you

00:17:39.519 --> 00:17:44.200
sum all the final goods and you multiply

00:17:41.440 --> 00:17:46.600
them by the the current price and that

00:17:44.200 --> 00:17:48.000
gives you the dollar GDP that you have I

00:17:46.599 --> 00:17:51.000
don't know what it is in the US today

00:17:48.000 --> 00:17:55.759
you could check it but it's $24

00:17:51.000 --> 00:17:57.759
trillion a so that's it P * Q you know

00:17:55.759 --> 00:17:59.679
prices times quantity and you sum across

00:17:57.759 --> 00:18:01.480
all the final goods

00:17:59.679 --> 00:18:04.120
that's we have to that's one way of

00:18:01.480 --> 00:18:06.839
calculating thing that's nominal GDP but

00:18:04.119 --> 00:18:09.119
again what we really care about is we're

00:18:06.839 --> 00:18:10.959
going to get a lot about later on is how

00:18:09.119 --> 00:18:13.519
that econom is doing over time is it

00:18:10.960 --> 00:18:15.840
growing is it not growing nominal GDP

00:18:13.519 --> 00:18:18.599
can grow for two different reasons can

00:18:15.839 --> 00:18:20.199
grow because the economy is really

00:18:18.599 --> 00:18:23.319
becoming more productive is producing

00:18:20.200 --> 00:18:26.200
more Goods or because prices are going

00:18:23.319 --> 00:18:28.119
up now at this moment real nominal GDP

00:18:26.200 --> 00:18:29.600
is growing very fast in the US despite

00:18:28.119 --> 00:18:32.239
the fact that we may have recession this

00:18:29.599 --> 00:18:34.119
year we don't know but nobody has any

00:18:32.240 --> 00:18:36.120
doubt that nominal GDP will grow because

00:18:34.119 --> 00:18:38.119
we have lots of inflation and so you

00:18:36.119 --> 00:18:40.798
want to separate these two things and

00:18:38.119 --> 00:18:43.918
the thing that removes the inflation

00:18:40.798 --> 00:18:47.200
component is what we call real

00:18:43.919 --> 00:18:50.200
GDP and real GDP if you hear the word

00:18:47.200 --> 00:18:51.440
only GDP and and that was produced by

00:18:50.200 --> 00:18:54.558
somebody understand what he's talking

00:18:51.440 --> 00:18:57.120
about GDP really means real GDP okay if

00:18:54.558 --> 00:18:59.359
you just hear GDP people are try is

00:18:57.119 --> 00:19:03.918
trying to say the output of the economy

00:18:59.359 --> 00:19:07.678
well that's real GDP and the real GDP is

00:19:03.919 --> 00:19:11.200
computed many tricks but but essentially

00:19:07.679 --> 00:19:13.880
what you do is you consume you you you

00:19:11.200 --> 00:19:16.519
you also sum across all the

00:19:13.880 --> 00:19:19.280
goods you also Su across the goods but

00:19:16.519 --> 00:19:21.240
you use constant prices not the prices

00:19:19.279 --> 00:19:23.319
of that point in time

00:19:21.240 --> 00:19:25.798
necessarily okay so I'm going to give

00:19:23.319 --> 00:19:27.798
you a very concrete example but before

00:19:25.798 --> 00:19:30.480
doing that for this course we're going

00:19:27.798 --> 00:19:31.599
to call nominal GDP and all nominal

00:19:30.480 --> 00:19:33.440
variables are going to have that's what

00:19:31.599 --> 00:19:35.839
the textbook does they're going to have

00:19:33.440 --> 00:19:38.798
a dollar sign in front so that's our

00:19:35.839 --> 00:19:40.959
measure that's nominal GDP GDP is going

00:19:38.798 --> 00:19:43.480
to be Y without the dollar that's real

00:19:40.960 --> 00:19:46.120
GDP okay for the first part of the

00:19:43.480 --> 00:19:47.440
course up to quiz one we're we're going

00:19:46.119 --> 00:19:49.038
very we're going to worry very little

00:19:47.440 --> 00:19:51.759
about nominal things because we want to

00:19:49.038 --> 00:19:53.798
have prices completely fixed but but you

00:19:51.759 --> 00:19:59.759
still need to know the concept and

00:19:53.798 --> 00:19:59.759
that's real GDP so now let me give you

00:20:01.759 --> 00:20:07.480
an example so suppose you have this this

00:20:05.240 --> 00:20:09.000
this the simple economy we had before

00:20:07.480 --> 00:20:11.360
we're just going to look at final goods

00:20:09.000 --> 00:20:15.480
because that's what we need to look

00:20:11.359 --> 00:20:17.319
at to con to construct GDP and so this

00:20:15.480 --> 00:20:21.159
economy produces cars and supposedly

00:20:17.319 --> 00:20:26.038
produces 10 cars in 2011 12 cars in

00:20:21.159 --> 00:20:28.000
2012 and 13 cars in in 2013 but suppos

00:20:26.038 --> 00:20:30.480
the price of a car is what you see there

00:20:28.000 --> 00:20:33.839
20,000 24,000 and

00:20:30.480 --> 00:20:36.640
26,000 nominal GDP is simply the

00:20:33.839 --> 00:20:37.918
product you know of this times that that

00:20:36.640 --> 00:20:41.080
gives you

00:20:37.919 --> 00:20:43.759
$200,000 12 cars times $25,000 gives you

00:20:41.079 --> 00:20:45.918
288 and so on that's nominal

00:20:43.759 --> 00:20:48.240
GDP real

00:20:45.919 --> 00:20:51.080
GDP you have to

00:20:48.240 --> 00:20:54.038
pick which price you want to use but

00:20:51.079 --> 00:20:57.519
only use one and don't vary it over time

00:20:54.038 --> 00:20:59.480
okay so in this particular case we pick

00:20:57.519 --> 00:21:01.879
2012

00:20:59.480 --> 00:21:06.839
okay so that means when you say GD real

00:21:01.880 --> 00:21:08.440
GDP at 20 2012 2012 base 2012 or at 2012

00:21:06.839 --> 00:21:11.399
prices means that you're using the

00:21:08.440 --> 00:21:13.440
prices of 2012 you don't bury that you

00:21:11.400 --> 00:21:16.080
let quantities change over time but the

00:21:13.440 --> 00:21:17.840
prices remain fixed so in this case real

00:21:16.079 --> 00:21:22.960
GDP at

00:21:17.839 --> 00:21:25.000
$22 is you know is 10 cars times 25,000

00:21:22.960 --> 00:21:29.120
that give you 240,000

00:21:25.000 --> 00:21:30.679
12 cars time 24,000 28

00:21:29.119 --> 00:21:32.918
this is interesting for this year

00:21:30.679 --> 00:21:34.559
nominal GDP is the same as real GDP why

00:21:32.919 --> 00:21:37.960
is

00:21:34.558 --> 00:21:37.960
that it's an

00:21:40.759 --> 00:21:45.440
accident exactly we're using that's a

00:21:43.038 --> 00:21:48.319
base year so that's nominal GDP will

00:21:45.440 --> 00:21:50.120
always be equal to real GDP at the base

00:21:48.319 --> 00:21:51.839
year that's the Year we're picking as

00:21:50.119 --> 00:21:53.278
the base know because those are the

00:21:51.839 --> 00:21:57.359
prices we're

00:21:53.278 --> 00:22:02.200
using I what about 2013 well is is not

00:21:57.359 --> 00:22:04.240
26,000 * 13 is 24, 1013 so we get 312

00:22:02.200 --> 00:22:07.600
and it's obvious here that real GDP is

00:22:04.240 --> 00:22:09.759
growing less than nominal GDP why is

00:22:07.599 --> 00:22:12.199
that well because this economy has

00:22:09.759 --> 00:22:13.839
inflation prices are rising over time

00:22:12.200 --> 00:22:16.000
and we want to remove that when we want

00:22:13.839 --> 00:22:19.119
to look at the real concept the real

00:22:16.000 --> 00:22:19.119
concept removes the price

00:22:19.759 --> 00:22:24.000
effect there are times in which you

00:22:22.000 --> 00:22:26.038
don't want to remove all that price

00:22:24.000 --> 00:22:28.480
effect and it happens a lot for example

00:22:26.038 --> 00:22:30.359
in computers because sometimes the

00:22:28.480 --> 00:22:32.440
increase in the price of the computer is

00:22:30.359 --> 00:22:33.839
simply because the computer is better

00:22:32.440 --> 00:22:35.720
and and you want to correct for quality

00:22:33.839 --> 00:22:41.199
and so on but again that's not something

00:22:35.720 --> 00:22:41.200
you need to worry about in this course

00:22:42.200 --> 00:22:46.960
okay maybe some of you deciding the pace

00:22:44.960 --> 00:22:50.400
which you want me to move I'm really

00:22:46.960 --> 00:22:52.319
puzzled by this stuff here this is this

00:22:50.400 --> 00:22:55.080
is from the book and you see what

00:22:52.319 --> 00:22:58.200
happened in in the US with nominal and

00:22:55.079 --> 00:23:00.599
real GDP with base year 2012 so as I

00:22:58.200 --> 00:23:03.400
said before these two curves one is

00:23:00.599 --> 00:23:06.798
nominal GDP the red line the blue line

00:23:03.400 --> 00:23:09.159
is real GDP we're using Bas year 2012 so

00:23:06.798 --> 00:23:12.960
at that point they have to be the same

00:23:09.159 --> 00:23:17.919
and what you see very very clearly there

00:23:12.960 --> 00:23:20.440
is that a the Blue Line real GDP is

00:23:17.919 --> 00:23:24.120
flatter than the red line why is

00:23:20.440 --> 00:23:24.120
that why is it

00:23:27.440 --> 00:23:31.480
yeah is inflation see yeah by the way I

00:23:29.880 --> 00:23:33.440
do have a reference for you so ask me

00:23:31.480 --> 00:23:37.079
after the okay

00:23:33.440 --> 00:23:40.240
good um anyway so yeah in the US between

00:23:37.079 --> 00:23:43.119
1916 and 2018 real nominal GDP increased

00:23:40.240 --> 00:23:45.679
by a factor of 38 while real GDP by a

00:23:43.119 --> 00:23:47.678
factor of 5.7 big difference so so you

00:23:45.679 --> 00:23:49.600
better be careful when when you look at

00:23:47.679 --> 00:23:51.080
GDP that you are removing inflation

00:23:49.599 --> 00:23:52.000
especially in I mean if you were to look

00:23:51.079 --> 00:23:53.918
in

00:23:52.000 --> 00:23:55.720
Argentina these guys have had a

00:23:53.919 --> 00:23:58.120
recession a chronic recession for a long

00:23:55.720 --> 00:24:00.240
time big recessions but nominal GDP is

00:23:58.119 --> 00:24:05.000
explo clothing because they have 10,000%

00:24:00.240 --> 00:24:05.000
inflation so so so it makes a big

00:24:05.919 --> 00:24:11.960
difference especially over

00:24:09.038 --> 00:24:13.839
time this is just so you get the picture

00:24:11.960 --> 00:24:16.558
the complete picture for the US this is

00:24:13.839 --> 00:24:19.399
a GDP growth in the US since we have

00:24:16.558 --> 00:24:21.639
national accounts okay and some

00:24:19.400 --> 00:24:23.640
noticeable things well again

00:24:21.640 --> 00:24:25.520
recessions this was a big recession

00:24:23.640 --> 00:24:29.600
remember we call this the Great

00:24:25.519 --> 00:24:32.240
Recession big recession and well this is

00:24:29.599 --> 00:24:34.759
covid and then this is 2020 and then

00:24:32.240 --> 00:24:36.440
they bounce back in 2021 when we reopen

00:24:34.759 --> 00:24:38.038
the economy big growth but that's very

00:24:36.440 --> 00:24:41.120
anomalous I mean that's a very weird

00:24:38.038 --> 00:24:43.480
shock okay but that's a you see these

00:24:41.119 --> 00:24:46.839
are all the shaded areas are

00:24:43.480 --> 00:24:48.759
recessions recessions are defined in a

00:24:46.839 --> 00:24:52.439
slightly more complicated way than that

00:24:48.759 --> 00:24:55.038
but one sort of er popular way of

00:24:52.440 --> 00:24:57.320
describing ression is as episode where

00:24:55.038 --> 00:24:59.359
you have two consecutive quarters of

00:24:57.319 --> 00:25:01.879
negative inflation that's not the formal

00:24:59.359 --> 00:25:05.319
definition of res but it's pretty close

00:25:01.880 --> 00:25:06.919
okay and so so that's that's what you

00:25:05.319 --> 00:25:10.200
have

00:25:06.919 --> 00:25:13.159
there another concept is an employment

00:25:10.200 --> 00:25:14.519
rate the unemployment rate so that's GDP

00:25:13.159 --> 00:25:16.080
and we're going to the in the first part

00:25:14.519 --> 00:25:18.398
of the course we want to worry a lot

00:25:16.079 --> 00:25:22.359
about that we're going to build a model

00:25:18.398 --> 00:25:23.558
on how to find equilibrium H GDP okay

00:25:22.359 --> 00:25:25.959
and we're going to see what happens with

00:25:23.558 --> 00:25:28.278
fiscal policy with monetary policy how

00:25:25.960 --> 00:25:31.278
how does equilibrium GDP macroeconomic

00:25:28.278 --> 00:25:33.960
EIC output changes with different forms

00:25:31.278 --> 00:25:37.640
of policies or when consumers get scared

00:25:33.960 --> 00:25:37.640
or stuff like that

00:25:38.159 --> 00:25:41.960
okay what about the unemployment rate

00:25:40.558 --> 00:25:44.639
the unemployment rate is not something

00:25:41.960 --> 00:25:46.600
we want to worry a lot about until the

00:25:44.640 --> 00:25:48.159
second part of the course after quiz one

00:25:46.599 --> 00:25:48.959
but I still I want to get over with

00:25:48.159 --> 00:25:51.960
these

00:25:48.960 --> 00:25:53.840
definitions so what is employment is a

00:25:51.960 --> 00:25:57.120
number of people who have a job that's

00:25:53.839 --> 00:25:59.519
easy unemployment is slightly less easy

00:25:57.119 --> 00:26:00.839
because it's first of all obviously to

00:25:59.519 --> 00:26:03.720
be an employee you don't have to have a

00:26:00.839 --> 00:26:06.278
you cannot have a job so but it's not

00:26:03.720 --> 00:26:08.759
enough that you don't have a

00:26:06.278 --> 00:26:10.880
job is an

00:26:08.759 --> 00:26:13.480
unemployed person is somebody that

00:26:10.880 --> 00:26:16.039
doesn't have a job and is looking for

00:26:13.480 --> 00:26:18.720
one

00:26:16.038 --> 00:26:21.599
okay not all unemployed people look for

00:26:18.720 --> 00:26:22.558
your job not all non-employed people are

00:26:21.599 --> 00:26:26.759
looking for

00:26:22.558 --> 00:26:29.200
jobs okay so un to be unemployed you

00:26:26.759 --> 00:26:32.599
need to not have a job and be looking

00:26:29.200 --> 00:26:34.519
for one the labor force what we call the

00:26:32.599 --> 00:26:37.879
labor force is the sum of those two

00:26:34.519 --> 00:26:39.639
groups the employed and the unemployed

00:26:37.880 --> 00:26:41.360
that would like to get a

00:26:39.640 --> 00:26:44.720
job

00:26:41.359 --> 00:26:45.918
okay the unemployment rate which is

00:26:44.720 --> 00:26:48.079
something I showed you in the previous

00:26:45.919 --> 00:26:50.520
lecture is just a ratio of these two

00:26:48.079 --> 00:26:53.678
concepts the unemployed over the labor

00:26:50.519 --> 00:26:55.839
force notice over the labor force not

00:26:53.679 --> 00:26:58.880
population the labor force which is a

00:26:55.839 --> 00:27:01.158
sum of the employed and those that are

00:26:58.880 --> 00:27:04.640
unemployed that do not have a job and

00:27:01.159 --> 00:27:04.640
are looking for a job

00:27:05.640 --> 00:27:11.840
okay how how is an employment measure in

00:27:09.000 --> 00:27:15.200
the US is mostly a survey and I have the

00:27:11.839 --> 00:27:17.278
the the info there it's called the CPS

00:27:15.200 --> 00:27:20.038
the current population survey that

00:27:17.278 --> 00:27:21.880
consults lots of households and they ask

00:27:20.038 --> 00:27:23.119
them about the employment status whether

00:27:21.880 --> 00:27:25.559
they have been looking for a job over

00:27:23.119 --> 00:27:27.479
the last two weeks or not and so on and

00:27:25.558 --> 00:27:30.480
that's the way we come up with with the

00:27:27.480 --> 00:27:32.038
number as as I said before H those that

00:27:30.480 --> 00:27:33.919
do not have a job but are not looking

00:27:32.038 --> 00:27:36.278
for a job they haven't been looking for

00:27:33.919 --> 00:27:38.480
a job in the last two weeks are called

00:27:36.278 --> 00:27:41.278
not in the labor force that's that's

00:27:38.480 --> 00:27:44.038
what we say now these concepts are

00:27:41.278 --> 00:27:47.640
between an employed and not in the labor

00:27:44.038 --> 00:27:49.079
force is it's not not that clear we we

00:27:47.640 --> 00:27:50.640
we look at the employment rate but we

00:27:49.079 --> 00:27:52.240
also tend to look at those people as

00:27:50.640 --> 00:27:54.320
well because many people are simply

00:27:52.240 --> 00:27:56.038
discouraged they would like to get a job

00:27:54.319 --> 00:27:58.359
but they have been looking for a while

00:27:56.038 --> 00:27:59.919
and they haven't found it and it it

00:27:58.359 --> 00:28:03.639
happens that there is a lot more

00:27:59.919 --> 00:28:05.159
discouraged workers during recessions

00:28:03.640 --> 00:28:06.720
and when you're having a big recession

00:28:05.159 --> 00:28:09.440
it's very difficult to find a job so

00:28:06.720 --> 00:28:10.839
it's very easy to get discourage and so

00:28:09.440 --> 00:28:12.840
that's the reason we look at broader

00:28:10.839 --> 00:28:15.038
measures of non-employment than the

00:28:12.839 --> 00:28:15.798
typical unemployment rate because a lot

00:28:15.038 --> 00:28:18.440
of

00:28:15.798 --> 00:28:19.879
those not in the labor force people that

00:28:18.440 --> 00:28:21.519
do not have a job and are not looking

00:28:19.880 --> 00:28:24.760
for a job are really discouraged they

00:28:21.519 --> 00:28:27.759
just give up after a while

00:28:24.759 --> 00:28:29.440
okay the participation rate and that's a

00:28:27.759 --> 00:28:31.158
very important concept something you

00:28:29.440 --> 00:28:33.320
would have ignored most of the time is

00:28:31.159 --> 00:28:35.640
very critical at this moment the

00:28:33.319 --> 00:28:39.158
participation rate is the ratio of the

00:28:35.640 --> 00:28:41.480
labor force to the total population of

00:28:39.159 --> 00:28:43.960
working age and you exclude people you

00:28:41.480 --> 00:28:48.000
know in prison and stuff like that but

00:28:43.960 --> 00:28:49.558
but a so it's label force is which is

00:28:48.000 --> 00:28:51.798
the sum of the employed and the

00:28:49.558 --> 00:28:53.240
unemployed divided by those that could

00:28:51.798 --> 00:28:56.278
work in

00:28:53.240 --> 00:28:59.519
principle okay and that we call that's

00:28:56.278 --> 00:29:01.398
what we call the participation rate

00:28:59.519 --> 00:29:05.679
how do these numbers look I showed you

00:29:01.398 --> 00:29:08.000
this picture in the previous uh lecture

00:29:05.679 --> 00:29:10.000
and that's the unemployment rate it

00:29:08.000 --> 00:29:12.278
skyrocketed during covid but it has

00:29:10.000 --> 00:29:15.200
declined enormously and as I said in the

00:29:12.278 --> 00:29:17.200
previous lecture a big issue is that the

00:29:15.200 --> 00:29:18.880
unemployment rate today is extremely low

00:29:17.200 --> 00:29:20.880
we haven't seen levels like this since

00:29:18.880 --> 00:29:24.039
the early

00:29:20.880 --> 00:29:26.880
60s okay the unemployment rate today is

00:29:24.038 --> 00:29:29.558
at record low levels and that's a

00:29:26.880 --> 00:29:31.320
problem some wonderful but it's also as

00:29:29.558 --> 00:29:32.798
a problem because we have an inflation

00:29:31.319 --> 00:29:34.439
problem and those two things are

00:29:32.798 --> 00:29:37.079
connected as you will learn later on in

00:29:34.440 --> 00:29:39.120
the course okay but that's what we have

00:29:37.079 --> 00:29:41.759
right now that's the unemployment rate

00:29:39.119 --> 00:29:45.278
now the reason the unemployment rate is

00:29:41.759 --> 00:29:47.480
so low there are two reasons really one

00:29:45.278 --> 00:29:49.839
is that there was lots of stimulus

00:29:47.480 --> 00:29:51.558
policy fiscal policy monetary policy so

00:29:49.839 --> 00:29:54.240
aggregate demand and consumers that were

00:29:51.558 --> 00:29:56.240
fed up of being locked out of

00:29:54.240 --> 00:29:57.798
restaurants and trips and so on for two

00:29:56.240 --> 00:30:00.120
years you know decided to travel and so

00:29:57.798 --> 00:30:03.038
on so so and they had lots of

00:30:00.119 --> 00:30:06.000
savings the the US consumer accumulated

00:30:03.038 --> 00:30:08.599
excess saving of $2.7 trillion and now

00:30:06.000 --> 00:30:10.278
they're spending this time China a big

00:30:08.599 --> 00:30:12.240
reason why people expect a big bounce

00:30:10.278 --> 00:30:14.839
back is because they also had a lot of

00:30:12.240 --> 00:30:18.000
savings because they were locked up for

00:30:14.839 --> 00:30:20.720
for quite some time so so as a result of

00:30:18.000 --> 00:30:22.119
that there's lots of demand for goods

00:30:20.720 --> 00:30:24.480
and as you're going to learn in the next

00:30:22.119 --> 00:30:29.959
lecture that means lots of output as

00:30:24.480 --> 00:30:29.960
well H but the second H reason

00:30:30.679 --> 00:30:33.880
is the

00:30:34.278 --> 00:30:41.038
following is the participation rate okay

00:30:38.558 --> 00:30:43.119
people haven't come back to work in the

00:30:41.038 --> 00:30:46.000
magnitudes that we expected so that's a

00:30:43.119 --> 00:30:49.158
participation rate in the US remember

00:30:46.000 --> 00:30:51.960
participation rate is labor force over

00:30:49.159 --> 00:30:55.919
all those that could work in principle

00:30:51.960 --> 00:30:57.519
okay ER what do you think is this look

00:30:55.919 --> 00:31:00.399
at the participation rate used to be in

00:30:57.519 --> 00:31:02.759
the 6 below 60s and then there was a big

00:31:00.398 --> 00:31:05.798
rise in the participation rate in the

00:31:02.759 --> 00:31:09.359
US what do you think is this due

00:31:05.798 --> 00:31:11.440
to women joining work women yeah joining

00:31:09.359 --> 00:31:15.038
the workforce that's what it

00:31:11.440 --> 00:31:16.639
did okay that's that since then since

00:31:15.038 --> 00:31:18.879
just women did all that they had to do

00:31:16.638 --> 00:31:24.479
sort of we have been declining and that

00:31:18.880 --> 00:31:26.559
that's that's an issue but ER but look

00:31:24.480 --> 00:31:28.558
at what happened here lots of people

00:31:26.558 --> 00:31:29.759
exit the labor force during covid I mean

00:31:28.558 --> 00:31:33.319
you know they had to take care of the

00:31:29.759 --> 00:31:35.240
kids and and and or or the elderly and

00:31:33.319 --> 00:31:37.439
so people withdrew from the labor force

00:31:35.240 --> 00:31:38.960
they didn't want a job it was also

00:31:37.440 --> 00:31:41.000
discouraging it was very difficult to

00:31:38.960 --> 00:31:42.558
get a job for iag you work in a

00:31:41.000 --> 00:31:46.720
restaurant it was impossible to get a

00:31:42.558 --> 00:31:50.000
job in a restaurant so but everyone

00:31:46.720 --> 00:31:53.440
expected this to recover to the previous

00:31:50.000 --> 00:31:55.599
level and it hasn't okay so you be you

00:31:53.440 --> 00:31:58.360
see that the participation rate has not

00:31:55.599 --> 00:32:00.319
come back to the levels preo is

00:31:58.359 --> 00:32:02.638
substantially below and that's one of

00:32:00.319 --> 00:32:04.079
the reasons you know that restaurants

00:32:02.638 --> 00:32:06.798
complain that they don't have workers

00:32:04.079 --> 00:32:09.519
and so on so forth is that many people

00:32:06.798 --> 00:32:11.000
haven't come back to a labor force we

00:32:09.519 --> 00:32:12.759
thought this was going to be temporary

00:32:11.000 --> 00:32:15.079
now there's a concern that a lot of that

00:32:12.759 --> 00:32:17.879
is really permanent people decided that

00:32:15.079 --> 00:32:20.918
you know life at home wasn't that bad

00:32:17.880 --> 00:32:23.240
after all less income but but they spend

00:32:20.919 --> 00:32:26.519
more time with the kids or whatever and

00:32:23.240 --> 00:32:28.720
so H ER and that's an issue and that

00:32:26.519 --> 00:32:30.798
that's a big reason behind

00:32:28.720 --> 00:32:33.120
the low unemployment rate and the fact

00:32:30.798 --> 00:32:36.359
that we have all this inflation has to

00:32:33.119 --> 00:32:39.319
do with everyone in particular the fed

00:32:36.359 --> 00:32:42.000
miscalculated the bounce back of of the

00:32:39.319 --> 00:32:42.000
participation

00:32:42.278 --> 00:32:46.839
rate

00:32:44.319 --> 00:32:49.038
good so as I said before we're not going

00:32:46.839 --> 00:32:50.918
to look at labor market issues until

00:32:49.038 --> 00:32:53.759
sort of the second part of the course

00:32:50.919 --> 00:32:54.960
after quiz one and the same is for

00:32:53.759 --> 00:32:57.440
inflation we're not going to look at

00:32:54.960 --> 00:33:00.919
inflation issues until the second part

00:32:57.440 --> 00:33:02.840
of of the course because to connect them

00:33:00.919 --> 00:33:05.038
I mean I they are connected and we're

00:33:02.839 --> 00:33:08.079
not going to look at Labor markets until

00:33:05.038 --> 00:33:09.200
sort of a lecture from now or so okay

00:33:08.079 --> 00:33:10.359
but let's look at but this is an

00:33:09.200 --> 00:33:11.840
important variable and certainly

00:33:10.359 --> 00:33:13.599
something you're facing every single day

00:33:11.839 --> 00:33:16.638
in the newspapers and so on the

00:33:13.599 --> 00:33:19.519
inflation rate so by inflation when you

00:33:16.638 --> 00:33:22.839
hear inflation that typically means the

00:33:19.519 --> 00:33:24.319
sustained rise in the general level of

00:33:22.839 --> 00:33:25.959
prices so it's not that the price of

00:33:24.319 --> 00:33:29.480
cars went up relative to the price of

00:33:25.960 --> 00:33:31.558
hotels or now down price hotel is that

00:33:29.480 --> 00:33:34.240
on average prices are rising that's what

00:33:31.558 --> 00:33:38.558
we call an inflation

00:33:34.240 --> 00:33:41.759
inflation um so we're going to call the

00:33:38.558 --> 00:33:43.879
price level PT and there are many

00:33:41.759 --> 00:33:45.720
different price levels all you see so

00:33:43.880 --> 00:33:48.278
the inflation rate when you hear the

00:33:45.720 --> 00:33:50.120
inflation rate is the rate of change of

00:33:48.278 --> 00:33:52.759
that price

00:33:50.119 --> 00:33:54.599
level an episode of

00:33:52.759 --> 00:33:56.119
deflation the opposite of what we're

00:33:54.599 --> 00:33:59.480
experiencing now where we're exper

00:33:56.119 --> 00:34:02.239
inflation is when that inflation rate is

00:33:59.480 --> 00:34:04.278
negative Japan most prominently has

00:34:02.240 --> 00:34:06.798
experienced something like that not now

00:34:04.278 --> 00:34:11.119
but experienced it for on and off for

00:34:06.798 --> 00:34:12.480
the last three decades or so um so what

00:34:11.119 --> 00:34:14.358
is the price level there are many ways

00:34:12.480 --> 00:34:16.440
of defining it and then there many

00:34:14.358 --> 00:34:20.000
different price levels a very popular

00:34:16.440 --> 00:34:22.280
one is what is called the GDP deflator

00:34:20.000 --> 00:34:24.760
and it's the one you see Le you is never

00:34:22.280 --> 00:34:26.320
mentioned in the newspapers okay but we

00:34:24.760 --> 00:34:27.760
economists tend to look at the deflator

00:34:26.320 --> 00:34:31.960
the deflator is nothing else than the

00:34:27.760 --> 00:34:33.720
ratio of nominal GDP to real GDP another

00:34:31.960 --> 00:34:35.918
one is far more popular and more

00:34:33.719 --> 00:34:38.559
relevant for you as consumers is what we

00:34:35.918 --> 00:34:42.158
call the Consumer Price Index that's the

00:34:38.559 --> 00:34:44.279
CPI you hear CPI that's what it is so

00:34:42.159 --> 00:34:45.919
it's it's it's it's you calculate the

00:34:44.280 --> 00:34:48.480
rate of inflation from the CPI you

00:34:45.918 --> 00:34:52.039
calculate the same way but you use a CPI

00:34:48.480 --> 00:34:53.119
there instead of the GDP deflator now it

00:34:52.039 --> 00:34:57.039
turns

00:34:53.119 --> 00:34:58.920
out H that obviously confused with it it

00:34:57.039 --> 00:35:01.079
turns out that these two measures are

00:34:58.920 --> 00:35:02.838
sort of pretty well aligned okay there

00:35:01.079 --> 00:35:04.920
are differences that may be interesting

00:35:02.838 --> 00:35:06.519
at some specific point in time but they

00:35:04.920 --> 00:35:08.240
tell you more or less the same picture

00:35:06.519 --> 00:35:10.079
in particular there is absolutely no

00:35:08.239 --> 00:35:12.479
doubt that we have an inflation problem

00:35:10.079 --> 00:35:13.920
these days you can be as selective as

00:35:12.480 --> 00:35:15.920
you want with the price index you want

00:35:13.920 --> 00:35:18.760
to use and people are getting very

00:35:15.920 --> 00:35:20.440
selective now we have CPI

00:35:18.760 --> 00:35:23.119
excluding

00:35:20.440 --> 00:35:25.320
ER well one thing that that makes a lot

00:35:23.119 --> 00:35:28.200
of sense is to exclude the most volatile

00:35:25.320 --> 00:35:30.838
Goods so typically the CPI we we use

00:35:28.199 --> 00:35:33.039
what called core CPI which removes

00:35:30.838 --> 00:35:34.119
energy and food which are very volatile

00:35:33.039 --> 00:35:36.679
prices you don't want the thing to be

00:35:34.119 --> 00:35:38.880
moving all over the place but now we're

00:35:36.679 --> 00:35:40.639
also beginning to remove shelter because

00:35:38.880 --> 00:35:42.599
shelter inflation is very high and

00:35:40.639 --> 00:35:44.078
sticky and so on so so people can get to

00:35:42.599 --> 00:35:47.039
be very selective but no matter how you

00:35:44.079 --> 00:35:49.200
look at the thing we have a problem okay

00:35:47.039 --> 00:35:51.838
that there's no way around that so

00:35:49.199 --> 00:35:53.399
that's the the way again we're not going

00:35:51.838 --> 00:35:56.119
to look we're going to talk a lot about

00:35:53.400 --> 00:35:58.280
this problem of course but we need to

00:35:56.119 --> 00:36:00.480
build tools and and we're going to get

00:35:58.280 --> 00:36:02.040
there in about nine lectures from now

00:36:00.480 --> 00:36:03.960
okay nine lectures from now we're going

00:36:02.039 --> 00:36:06.719
to be able to talk about what what is

00:36:03.960 --> 00:36:08.720
going on in with Ms I mean you can talk

00:36:06.719 --> 00:36:11.159
whenever you want but with

00:36:08.719 --> 00:36:13.159
Ms okay so that those are the concepts I

00:36:11.159 --> 00:36:15.318
wanted to discuss today those are the

00:36:13.159 --> 00:36:17.879
definitions and relief that we got over

00:36:15.318 --> 00:36:19.079
this stuff let me just show you we have

00:36:17.880 --> 00:36:20.599
five minutes or

00:36:19.079 --> 00:36:24.119
so

00:36:20.599 --> 00:36:25.720
er equivalent numbers for other places

00:36:24.119 --> 00:36:28.480
around the world that's

00:36:25.719 --> 00:36:31.318
China okay

00:36:28.480 --> 00:36:32.800
that's China That's GDP growth for China

00:36:31.318 --> 00:36:36.000
and there are several things you can see

00:36:32.800 --> 00:36:38.000
from for this GDP series the first is

00:36:36.000 --> 00:36:40.318
that it was very high this these numbers

00:36:38.000 --> 00:36:42.358
look a lot on average it's a lot higher

00:36:40.318 --> 00:36:43.719
than the US when I show you the US you

00:36:42.358 --> 00:36:45.880
know the rate of growth was moving

00:36:43.719 --> 00:36:47.959
around 2% one and a half perc blah blah

00:36:45.880 --> 00:36:50.000
blah occasionally recessions and so on

00:36:47.960 --> 00:36:52.920
this is China look you had you know

00:36:50.000 --> 00:36:55.880
numbers like 10% or so that's

00:36:52.920 --> 00:36:57.599
interesting we want to know why is that

00:36:55.880 --> 00:37:00.039
you can have so much difference in

00:36:57.599 --> 00:37:01.280
different countries okay and and that's

00:37:00.039 --> 00:37:03.400
what we're going to do in the third part

00:37:01.280 --> 00:37:05.560
of the course when we look at growth

00:37:03.400 --> 00:37:07.160
we're going to look at these kind of

00:37:05.559 --> 00:37:10.000
factors what can give you sustained rate

00:37:07.159 --> 00:37:12.679
of growth sustain I mean for a long

00:37:10.000 --> 00:37:16.239
period of time higher than in another

00:37:12.679 --> 00:37:19.159
country the the main factor just to

00:37:16.239 --> 00:37:23.078
preview what will happen is is

00:37:19.159 --> 00:37:25.679
H is simply that China was a lot poorer

00:37:23.079 --> 00:37:27.280
than the us at the beginning and when

00:37:25.679 --> 00:37:29.598
you're poorer and you put your act

00:37:27.280 --> 00:37:33.480
together you can grow a lot faster than

00:37:29.599 --> 00:37:35.400
the rest now China is slowing down aside

00:37:33.480 --> 00:37:37.719
from covid it's very clear for quite

00:37:35.400 --> 00:37:41.119
some time that they have been worried

00:37:37.719 --> 00:37:44.199
because clearly GDP growth is

00:37:41.119 --> 00:37:46.800
declining okay and and and they're

00:37:44.199 --> 00:37:48.759
terrified about that and and and many of

00:37:46.800 --> 00:37:52.240
the things that are happening with China

00:37:48.760 --> 00:37:54.599
have to do with the fear Associated to

00:37:52.239 --> 00:37:58.358
uh slow down in the rate of growth when

00:37:54.599 --> 00:38:01.000
they are still quite poor in per

00:37:58.358 --> 00:38:04.279
terms okay so that's a lot of what

00:38:01.000 --> 00:38:04.280
happens in China has to do with

00:38:04.679 --> 00:38:12.118
that if you look at Japan look at Japan

00:38:08.920 --> 00:38:15.240
Japan also grew very fast in the 60s

00:38:12.119 --> 00:38:18.240
okay you see this very fast rate of

00:38:15.239 --> 00:38:20.719
growth then it began to slow down and

00:38:18.239 --> 00:38:23.639
pom here collapse they have a massive

00:38:20.719 --> 00:38:26.039
crash in the in in in financial markets

00:38:23.639 --> 00:38:27.879
equities and land the price of land was

00:38:26.039 --> 00:38:29.079
enormous in Japan at this time it had a

00:38:27.880 --> 00:38:31.358
big Financial

00:38:29.079 --> 00:38:32.920
bubble you know for those of you that

00:38:31.358 --> 00:38:34.559
know Japan or if you don't know it

00:38:32.920 --> 00:38:36.720
doesn't matter there's a the Imperial

00:38:34.559 --> 00:38:38.358
Park in Tokyo which is a park that is

00:38:36.719 --> 00:38:40.679
much smaller than Central Park or

00:38:38.358 --> 00:38:42.719
whatever the value of that land at some

00:38:40.679 --> 00:38:45.440
point in time was the same as the value

00:38:42.719 --> 00:38:47.679
of the entire State of California okay

00:38:45.440 --> 00:38:49.480
that's the order of magnitude it was not

00:38:47.679 --> 00:38:52.078
for sale but you know in terms of

00:38:49.480 --> 00:38:55.079
location times price but that's that

00:38:52.079 --> 00:38:57.680
bubble crash and since then Japan has

00:38:55.079 --> 00:38:59.440
never been able to recover its modu okay

00:38:57.679 --> 00:39:02.559
it has been sort of growing at a very

00:38:59.440 --> 00:39:04.760
low rate for a very long period of time

00:39:02.559 --> 00:39:08.000
and one of the things that scares China

00:39:04.760 --> 00:39:09.359
is that this may happen to them because

00:39:08.000 --> 00:39:11.639
this happened to Japan when they were

00:39:09.358 --> 00:39:13.799
already quite Rich Japan was pretty poor

00:39:11.639 --> 00:39:16.879
after the war naturally and they grew

00:39:13.800 --> 00:39:18.680
very fast in the 60s but then they had

00:39:16.880 --> 00:39:20.400
this issue Financial bubble and so on

00:39:18.679 --> 00:39:23.118
they crashing had never been able to

00:39:20.400 --> 00:39:25.960
recover and China is worried that you

00:39:23.119 --> 00:39:28.838
know that this slowdown happens to them

00:39:25.960 --> 00:39:31.119
ER before they have acquire reached sort

00:39:28.838 --> 00:39:34.119
of the level of income per capita that

00:39:31.119 --> 00:39:36.559
Japan reach when that

00:39:34.119 --> 00:39:38.318
happened they common factors behind the

00:39:36.559 --> 00:39:40.039
two of them as well demographic factors

00:39:38.318 --> 00:39:42.559
demographics are very negative for both

00:39:40.039 --> 00:39:43.719
of them and which naturally will slow

00:39:42.559 --> 00:39:47.078
down the rate of growth we're going to

00:39:43.719 --> 00:39:49.719
look at that later this is inflation in

00:39:47.079 --> 00:39:51.200
Japan H you see sort of the most

00:39:49.719 --> 00:39:54.078
countries had high inflation around

00:39:51.199 --> 00:39:56.159
there because the the were the price of

00:39:54.079 --> 00:39:58.880
oil they with massive oil shocks and so

00:39:56.159 --> 00:40:01.759
on so inflation was pretty high but the

00:39:58.880 --> 00:40:04.720
problem of Japan has been the opposite

00:40:01.760 --> 00:40:07.480
since the bubble crash in the late 80s

00:40:04.719 --> 00:40:09.078
early 990s they have had very low

00:40:07.480 --> 00:40:12.199
inflation

00:40:09.079 --> 00:40:15.160
H even deflation and that's been a big

00:40:12.199 --> 00:40:17.598
problem part of the reason why they have

00:40:15.159 --> 00:40:19.920
had so low growth is because they have

00:40:17.599 --> 00:40:21.640
been in this deflationary trap and then

00:40:19.920 --> 00:40:23.960
you something you will will look at

00:40:21.639 --> 00:40:26.199
later on in the course when when you

00:40:23.960 --> 00:40:27.880
have deflation it's pretty it's very

00:40:26.199 --> 00:40:30.000
difficult to use monetary policy to get

00:40:27.880 --> 00:40:32.000
out of a recession and that's the reason

00:40:30.000 --> 00:40:34.318
they keep getting a stack

00:40:32.000 --> 00:40:36.559
there so that's all I wanted to say for

00:40:34.318 --> 00:40:38.960
today and I'm relief again that this

00:40:36.559 --> 00:40:40.519
lecture is behind us in the next lecture

00:40:38.960 --> 00:40:43.519
we're going to introduce the first model

00:40:40.519 --> 00:40:45.759
what we're going to look at is is H is

00:40:43.519 --> 00:40:49.519
how to determine equilibrium GDP and how

00:40:45.760 --> 00:40:51.720
that depends on on the a variety of

00:40:49.519 --> 00:40:54.599
things including fiscal policy not

00:40:51.719 --> 00:40:58.598
monetary policy that will happen later

00:40:54.599 --> 00:41:01.680
um but uh how scared you are consumers

00:40:58.599 --> 00:41:03.318
preferences and fears and so on so

00:41:01.679 --> 00:41:05.440
that's the plan so unless there are any

00:41:03.318 --> 00:41:07.159
questions about

00:41:05.440 --> 00:41:12.400
this

00:41:07.159 --> 00:41:12.399
no so see you next Monday