Professor K.D. Hoover, Econ 210D Topic 1 Fall Econ 120D Intermediate Macroeconomics Spring 2014 Professor Kevin D. Hoover Topic 1 Introduction to Macroeconomics and the National Income Accounts

Professor K.D. Hoover, Econ 210D Topic 1 Fall The Origins of “Macroeconomics” Ragnar Frisch, the Norwegian economist, coined the terms microeconomics and macroeconomics in Frisch shared the first Nobel Prize in Economics with Jan Tinbergen in 1969.

Professor K.D. Hoover, Econ 210D Topic 1 Fall London

Professor K.D. Hoover, Econ 210D Topic 1 Fall London Underground Map

Professor K.D. Hoover, Econ 210D Topic 1 Fall The Worst Economy Since the Great Depression?

Professor K.D. Hoover, Econ 210D Topic 1 Fall The Beginnings of National Accounting William Petty ( ) Earliest macroeconomic measurement What was Ireland worth to England?

Professor K.D. Hoover, Econ 210D Topic 1 Fall The Physiocrats take the King’s-eye View François Quesnay ( ) Victor de Riquetti, Marquis de Mirabeau ( ) Tableau Economique – the first formal macroeconomic model How to maximize the King’s revenue Unproductive spending by the nobility = the stimulus

Professor K.D. Hoover, Econ 210D Topic 1 Fall Adam Smith: A Nation is Rich when its People are Rich Adam Smith ( ), Scottish philosopher The Wealth of Nations, beginning of modern economics “According therefore, as this produce, or what is purchased with it, bears a greater or smaller proportion to the number of those who are to consume it, the nation will be better or worse supplied with all the necessaries and conveniencies for which it has occasion.”

Professor K.D. Hoover, Econ 210D Topic 1 Fall The Founders of National-Income Accounting Colin Clark ( ) Australian economist Simon Kuznets ( ), American economist, Nobel Prize 1971 James Meade ( ), English economist, Nobel Prize 1977 Richard Stone ( ), English economist, Nobel Prize 1984

Professor K.D. Hoover, Econ 210D Topic 1 Fall Stocks and Flows Income Expenditure Wealth

Professor K.D. Hoover, Econ 210D Topic 1 Fall Gross Domestic Product “the market value of all the final goods and services produced by labor and property located” within the borders of a country within a definite period.

Professor K.D. Hoover, Econ 210D Topic 1 Fall

Professor K.D. Hoover, Econ 210D Topic 1 Fall The Circular Flow of Income and Expenditure

Professor K.D. Hoover, Econ 210D Topic 1 Fall National Income Accounting Identities Product-expenditure Identity Y  C + I + G + NX Disposable-income Identity YD  Y – T + TR  C + S Sectoral-deficits Identity [ G – ( T – TR )] + [ I – S ] + [ EX – IM ]  0 government budget deficit + private sector deficit + foreign sector deficit  0 Inflow-Outflow Identity I + G + EX  S + ( T – TR ) + IM

Professor K.D. Hoover, Econ 210D Topic 1 Fall Accounting for Price Change Real GDP in Constant Dollars of Reference Year Year Nominal GDP Price of Coke $ b0.10$ b$ 13 4,072b 2013$ 13 16,768b0.75$ 60 2,236b$ 13 16,768b

Professor K.D. Hoover, Econ 210D Topic 1 Fall Accounting for Price Change Using the GDP Implicit Price Deflator Real GDP in Constant Dollars of Reference Year Year Nominal GDP Implicit Price Deflator (2010=100) $ b 17$ b$ 13 3,367b 2013$ 13 16,768b105$ 60 2,704b$ 13 16,768b

Professor K.D. Hoover, Econ 210D Topic 1 Fall Nominal vs. Real: A Vital Distinction Nominal (or current-dollar or market ) = quantities measured in the actual dollars of each period. Real (or constant-dollar ) = quantities adjusted for price changes.

Professor K.D. Hoover, Econ 210D Topic 1 Fall Deflation: Converting Nominal to Real Reference Period = period in whose dollars real values are expressed. Price Factor = pf t = p reference / p t Conversion to constant dollars $ reference X t = pf t  $ t X t

Professor K.D. Hoover, Econ 210D Topic 1 Fall International GDP Comparisons

Professor K.D. Hoover, Econ 210D Topic 1 Fall International GDP per Capita Comparisons

Professor K.D. Hoover, Econ 210D Topic 1 Fall U.S. GDP Growth Rates Over Time – 1

Professor K.D. Hoover, Econ 210D Topic 1 Fall U.S. GDP Growth Rates Over Time – 2

Professor K.D. Hoover, Econ 210D Topic 1 Fall U.S. Inflation Rates Over Time

Professor K.D. Hoover, Econ 210D Topic 1 Fall END of Topic 1 Next Topic: 2. Trends and Cycles