四Investment Tools Economics Macroeconomic Analysis.docx

1、四 Investment Tools Economics Macroeconomic Analysis四、 Investment Tools: Economics: Macroeconomic Analysis1.A: Preliminary Reading: Taking the Nations Economic Pulsea: Explain the two approaches to measuring gross domestic product (GDP) and calculate GDP using each approach.The expenditure approach i

2、s a demand-based concept measured by summing personal consumption, gross private investment, government consumption and gross investment, and net exports of goods and services.Resource cost/income approach: The resource cost/income approach is a supply or production oriented approach and measures GD

3、P by summing the following components employee compensation, proprietors income, rents, corporate profits, interest income, indirect business taxes, depreciation, and net income of foreigners.b: Distinguish between GDP and gross national product (GNP).GNP is the total market value of all final goods

4、 and services produced by the citizens of a country no matter where they are residing. Prior to 1991 GNP was used to measure US production.GNP and GDP are closely related concepts. GDP is a measure of the output that is produced domestically, while GNP is a measure of the output produced by the nati

5、onals of a country regardless of where they live. GNP is GDP PLUS income earned by citizens from their work and investments abroad, LESS the income earned by foreigners from their work and investments within the country.GDP measures output within the borders of a country regardless of the citizenshi

6、p of the producer. GNP measures the output of the countrys nationals regardless of where they live.c: Explain the difference between real and nominal GDP.An important use of GDP is to compare the level of production over time. However, when nominal GDP (GDP measured in terms of current prices) chang

7、es from one period to the next, it reflects both changes in production and price changes. Therefore, economists attempt to filter out the impact of GDP by calculating GDP measured in terms of prices from some base year. This measure is called real GDP. Changes in real GDP correspond to real or actua

8、l changes in production.Since nominal GDP is measured with current prices and real GDP is measured relative to the price level in some base year, we need a price index to indicate the relative price change between periods.d: Distinguish between the GDP deflator and the consumer price index.The GDP D

9、eflator is a general price index that corresponds to the price change exhibited by a very large market basket - all final goods and services produced. An important point to note is that the market basket of goods changes every year depending on current production. In other words, the market basket i

10、s not fixed. The GDP Deflator is useful for measuring economy-wide inflation. The current base year is 1992.The Consumer Price Index (CPI) is different than the GDP deflator. First, a relatively small market basket (364 items) is used. Second, the market basket is fixed from year-to-year. Finally, t

11、he CPI measures consumer price changes and does not directly measure the price changes of items purchased by businesses and government.The net result of all these differences is very small. However, the CPI tends to overstate the inflation rate because its market basket is fixed and does not conside

12、r that consumers will substitute away from goods that have risen dramatically in price . However, the CPI is useful for measuring inflation in the consumer goods sector.e: Calculate real GDP, using nominal GDP and the GDP deflator.Example: Nominal GDP was $2.5 billion in 1992 and $3.5 billion in 199

13、8. If the GDP deflator was 100.0 in 1992 and 112.7 in 1998, what is the change in real GDP over the period both in dollars and in percentage terms?Answer:1. Nominal GDP in 1992 = $2.5 billion. 2. 1998 GDP in 1992 dollars = $3.5 (100.0/112.7) = $3.1 billion. 3. Increase in dollars: $3.1 - 2.5 = $0.6

14、billion. Increase in percent: (3.1 - 2.5) = .24 or 24%. Although nominal GDP rose by over 40% during the period, the real production of the economy only rose by 24%. Real GDP current period = nominal GDP current period x (GDP deflator base year / GDP deflator current period)f: Discuss the major limi

15、tations of GDP.Limitations with using GDP as a measure of economic activity: 1. GDP does not count non-market production-specifically, homemaker services. 2. GDP does not count the underground economy-illegal activities and tax evasion. 3. GDP does not measure the value of leisure activities, the st

16、andard of living accounted for by a shorter workweek, and changing working conditions. 4. GDP does not measure the changing quality of goods and services. 5. GDP does not measure the cost of pollution and damage to the ecology. g: Describe alternative measures of domestic output and income, includin

17、g GDP, GNP, national income, personal income, and disposable income. Gross domestic product = the total market value of all final goods produced within a country. Gross national product = the total market value of all final goods produced by the citizens of a country. National income = the total inc

18、ome payments to labor and capital during the year. It includes total earnings (domestic and foreign) of a nations citizens. Personal income = the total income received by individuals. Note that transfer payments such as social security are included here. Disposable Income = personal income - persona

19、l taxes. 1.B: Preliminary Reading: Economic Fluctuations, Unemployment, and Inflationa: Explain the phases of the business cycle.The business cycle is characterized by fluctuations in economic activity. Real GDP and the rate of unemployment are key variables used when determining the current phase o

20、f the cycle.The four phases of the business cycle are:1. Peak, 2. Contraction, 3. Recessionary Trough, and 4. Expansion. As to the length of each phase, recent experience has shown that the contractionary periods are becoming shorter, and the expansionary periods are becoming longer in duration. A r

21、ecession is defined as a period during which real GNP declines for two or more successive quarters. Both the contraction and recessionary trough comprise a recession. A depression is a prolonged and very severe recession.b: Describe unemployment statistics and discuss the problems in measuring unemp

22、loyment.The labor force is defined as those people of working age (+16) who are either employed or seeking employment. The labor force participation rate is the number of persons 16 or older who are either employed or actively seeking employment as a percentage of the civilian population 16 or older

23、. The rate of unemployment is the percent of people in the civilian labor force who are unemployed It is important to note that if a person is not working, he/she is not necessarily classified as unemployed. An individual must be actively seeking employment or waiting for another job to be considere

24、d unemployed. Household workers, students, and retirees are examples of individuals who have chosen to exit the labor force.Workers who have been laid off but are waiting for recall to their old jobs are counted as unemployed. An individual is said to be unemployed if he/she is actively seeking empl

25、oyment or waiting to begin or return to a job.Workers who have become discouraged and have given up looking for employment are not counted as unemployed. This problem accounts for the anomaly that occurs when the economy turns up and the unemployment rate jumps.Workers looking for full-time employme

26、nt but settling for part-time work are considered as being employed. Because of these measurement problems, some economists feel the proper measure of employment would be the employment/population ratio rather than the rate of unemployment.c: Describe the three types of unemployment.Frictional unemp

27、loyment is unemployment due to constant changes in the economy that prevent qualified workers from being immediately matched with existing job openings. There are two causes of frictional unemployment:1. Imperfect information. 2. The job search conducted by both employees and employers. Structural u

28、nemployment is unemployment due to structural changes in the economy that eliminate some jobs while generating job openings for which unemployed workers are not qualified. Structural unemployment differs from frictional unemployment in that workers do not currently have the skills needed to perform

29、the newly created jobs.Cyclical unemployment is unemployment caused by a change in the general level of economic productivity. When the economy is operating at less than full capacity, positive levels of cyclical unemployment will be present. At levels above full capacity, negative cyclical unemploy

30、ment will exist.d: Define full employment.When cyclical unemployment is zero, the economy is said to be operating at full employment. However, at full employment, both structural and frictional unemployment still exist. Therefore, there is some level of unemployment, which is expected when the econo

31、my is at full employment.The natural rate of unemployment is that rate of unemployment present when the economy is at its full employment rate of production or output. In the recent past, the natural rate has risen due to changes in the composition of the labor force, namely, and increase in young w

32、orkers entering the labor force.This rate of unemployment can persist for an indefinite period of time and is typically associated with the economys maximum long-rate of output.e: Define inflation and calculate the inflation rate.Inflation is a protracted period of rising prices. As inflation rises, the purchasing power of each dollar held declines. Inflation = (this years price index - last years price index) / (last years price index).Example: A price index is 113.5 for 2000 and 119.9 at the end of 2001. What was the inflation rat