National Accounts
Measuring the Economy
• National accounts are the core statistical
measure of the economy.
• Accounts cover many features of the economy
but organizing concept is
Gross Domestic Product (GDP)
Quantity Aggregates
• To understand the macroeconomy, we need to measure it.
Chief measure of economy is the level of
production: GDP
• We need to combine the many goods produced or
consumed in an economy into one measure.
+ +
+ +
=?
Gross Domestic Product (GDP)
• “GDP combines in a single figure, and with no double
counting, all the output (or production) carried out by all
the firms, non-profit institutions, government bodies and
households in a given country during a given period,
regardless of the type of goods and services produced,
provided that the production takes place within the
country’s economic territory.” L & B p. 15
All goods sold in an economy
share a common unit of
measure: the price at which
they are sold.
Sum up
the value
of goods
GDP is a measure of production
• Value added at production establishment i
• GDP is the sum of VA across establishments.
i
i
i
Outputs
Intermediate Consumptions
Value Added =
Sales + Change in inventories
- raw materials, semi-processed inputs and energy costs
644444444444447 44444444444448
14444444444444444444444442 4444444444 3.44444444444444
i iGDP Value Added +Product Taxes less subsidies
Economic Concept
• Value Added is production at firm level due to
the combination of capital equipment and
workers.
• Value added is not equal to profits because the
costs of worker and capital are not deducted.
GDP is a Gross Concept
• One cost of production is depreciation of
equipment and structures used for production.
• This cost, referred to as consumption of fixed
capital, is not subtracted from sales to
construct value added.
• Net Domestic Product = GDP – Consumption
of Fixed Capital
Production Approach
Sub-aggregates
• Divide production establishments into sectors
usually along the line of
– Primary: Natural Resources (Agriculture, Forestry,
Fishing, Mining, Quarrying)
– Secondary: Goods production (Manufacturing,
Construction, Utilities)
– Tertiary: Intangibles Production
• Accounts are created by national statistical
agencies
• UN System of National Accounts is the
“internationally agreed standard set of
recommendations” used by most countries.
• Annual data for many countries available
at the UN
Link
Link
2009 r
1,090
28,227
34,961
50,146
1,436,427
365,880
Import and export trade 305,458
48,787
99,048
Transportation and storage 93,936
Postal and courier services 5,112
46,808
235,581
173,583
Real estate 86,833
Professional and business services 86,749
279,453
187,286
1,550,851
55,967
1,622,322
Ownership of premises
GDP at basic prices
Taxes on products
GDP at current market prices
Import/export, wholesale and retail trades
Accommodation and food services
Transportation, storage, postal and courier services
Information and communications
Financing and insurance
Real estate, professional and business services
Public administration, social and personal services
Manufacturing
Electricity, gas and water supply, and waste management
Construction
Services
(GDP) by Economic Activity at Current Price HK$ Mn
Economic Activity
Agriculture, fishing, mining and quarrying
Table 035
Ag
ricu
ltu
re
Min
ing
Ma
nu
factu
rin
g
Utilitie
s
Co
nstr
uctio
n
Tra
de
Tra
nsp
ort
FIR
E
Se
rvic
es
La
nd
lord
19802006 #
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Hong Kong: Value Added by Sector
Hong Kong Census and Statistics
How do we measure value-added of
non-market goods?
• Production of government bodies and non-market institutions is measured at cost (sum of labor payments plus capital consumption costs).
• Value of housing services of owner-occupied housing valued at imputed rental value, i.e. market rent of similar housing stock.
• Value of non-compensated household work valued at zero.
How do we measure financial services?
• Banking industry output includes interest
income on loans minus interest payments on
deposits (plus fee income).
• Insurance industry output is measured as
premiums net of indemnity payments (w/
minor adjustments).
Demand
• If we add up the value added at all stages of
production we derive the value to the end user.
• Sum of Final Demand Aggregates equals Sum
of Value Added
Expenditure Approach
• Purchase of Final goods by end users are
divided into two categories:
1. Consumption: Household expenditure (durables,
nondurables & services); government
(nondurables & services) expenditure; nonprofit
expenditures
2. Investment: Inventories, Fixed Investment
(equipment, structures)
Reconciliation
• Some demand for domestically produced value
added comes from abroad, some domestic
demand is satisfied by overseas goods.
GDP = Consumption + Investment + Exports –
Imports
Exports – Imports = External Balance = Trade
Balance = Net Exports <> 0
OECD National Accounts Main Economic Aggregates
http://stats.oecd.org
Dataset: 1. Gross domestic product
2010
Transaction
B1_GE: Gross domestic product (expenditure approach) 1,173
P3_P5: Domestic demand 1,137
P3: Final consumption expenditure 795
P31S14: Final consumption expenditure of households 598
P31S15: Final consumption expenditure of non-profit institutions
serving households17
P3S13: Final consumption expenditure of general government 180
P5: Gross capital formation 342
P51: Gross fixed capital formation 336
P52_P53: Changes in inventories & acquisitions less disposals of valuables 6
B11: External balance of goods and services 33
P6: Exports of goods and services 614
P7: Imports of goods and services 582
DB1_GE: Statistical discrepancy 3
Country: Korea
Measure: National currency, current prices
Trillions of Won
Dataset: 1. Gross domestic product
Country: Korea
Measure: National currency, current prices
Frequency: Annual
Trillions of Won 2009
B1_GE: Gross domestic product (expenditure approach) 1,065
P3_P5: Domestic demand 1,026
P3: Final consumption expenditure 746
P31S14: Final consumption expenditure of households 560
P31S15: Final consumption expenditure of non-profit institutions
16
P3S13: Final consumption expenditure of general government
170
P5: Gross capital formation 280
P51: Gross fixed capital formation 310
P52_P53: Changes in inventories and acquisitions less disposals of valuables
-30
B11: External balance of goods and services 39
P6: Exports of goods and services 530
P7: Imports of goods and services 490
DB1_GE: Statistical discrepancy -1
Some Asian Expenditure Shares: 2008
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
Household Government Investment Exports Imports
PRC Japan Korea
Source: United Nations Main Aggregates Database Source: United Nations Main Aggregates Database
Value Added and Income
• Production establishments are where income is
generated. Funds raised can be paid for labor
and finance costs, left over money is profit
income.
• Sum of domestic value added (GDP) is equal
to wage payments plus financial and profit
income referred to as “operating surplus and
mixed income.”
GDP Equivalence
Dataset: 1. Gross domestic productKorea
Tril. Won
2009
B1_GA: Gross domestic product (output) 1,065
B1G: Gross value added at basic prices 959
D21_D31: Taxes less subsidies on products 106
DB1_GA: Statistical discrepancy ..
B1_GE: Gross domestic product (expenditure) 1,065
P3_P5: Domestic demand 1,026
B11: External balance of goods and services 39
DB1_GE: Statistical discrepancy -1
B1_GI: Gross domestic product (income) 1,065
D1: Compensation of employees 494
B2G_B3G: Gross operating surplus & mixed income 453
D2_D3: Taxes less subsidies on production and
imports119
DB1_GI: Statistical discrepancy 0
Country
Measure
Gross Domestic Product
http://stats.oecd.org/Index.aspx
2 Compensation of employees, paid 7980.6
3 Wage and salary accruals 6417.5
8 Supplements to wages and salaries 1563.1
9 Taxes on production and imports 1054
10 Less: Subsidies /1/ 57.3
11 Net operating surplus 3673.5
12 Private enterprises 3689.2
13 Net interest and miscellaneous payments, domestic 747.6
14 Business current transfer payments (net) 136.7
15 Proprietors' income with IVA and CCA 1036.4
16 Rental income of persons with CCA 350.2
17 Corporate profits with IVA and CCA, domestic 1418.2
18 Taxes on corporate income 411.1
19 Profits after tax with IVA and CCA 1007.1
20 Net dividends 615.3
21 Undistributed corporate profits withwith IVA and CCA 391.8
22 Current surplus of government enterprises /1/ -15.7
23 Consumption of fixed capital 1874.9
24 Private 1540.9
25 Government 334
1 Gross domestic income 14525.7
Addendum:
26 Statistical discrepancy 0.8
CCA: Capital Consumption Adjustment
Line 2010
Table 1.10. Gross Domestic Income by Type of Income
[Billions of dollars]
GNI vs. GDI
• Net Factor Income [NFI] is income earned on
overseas work or investments minus income
generated domestically but paid to foreigners.
GNI GDI
Gross National Income Gross Domestic Income
= income earned by
domestic residents.
= income created within
national borders.
GNI = GDI +NFI
(GNP = GDP+NFI)
BEA U.S. International Transactions Accounts Data
Table 1. U.S. International Transactions US $ Million
Line (Credits; debits -) 2010
12 Income receipts 663,240
13 Income receipts on U.S.-owned assets abroad 657,963
14 Direct investment receipts 432,000
15 Other private receipts 224,469
16 U.S. government receipts 1,494
17 Compensation of employees 5,278
29 Income payments (498,016)
30 Income payments on foreign-owned assets in the US (483,504)
31 Direct investment payments (151,361)
32 Other private payments (196,004)
33 U.S. government payments (136,139)
34 Compensation of employees (14,512)
35 Unilateral current transfers, net (136,095)
36 U.S. government grants/4/ (44,717)
37 U.S. government pensions and other transfers (10,365)
38 Private remittances and other transfers/6/ (81,013)
Net Factor Income 29,129
Compare Macau and the Philippines
GDP or GNI
• Macau produces a lot of profits paid to
overseas owners of casinos.
• Philippines workers earn a lot of income
overseas.
• Which is larger Philippines’ GDP or
Philippines GNI?
• Does Macau have greater GDP or GNI?
NFI/GDP 2009 UN Main Aggregates
Chad -42.68% Russian Federation -3.23% China: Hong Kong SAR3.12%
Liberia -20.14% China, People's Republic of -2.04% Switzerland 4.15%
Ireland -16.94% Brazil -2.04% Haiti 9.62%
Cambodia -15.64% India -0.13% Bangladesh 11.00%
Angola -13.95% United States 0.28% Philippines 14.73%
Chile -9.69% Bermuda 23.62%
Panama -8.97% Lesotho 35.17%
China: Macao SAR-6.03%
Australia -4.65%
Using GDP to Measure Economic
Performance
Principle Tool: Growth Rates
• For any variable, Xt, that is observed at
different points at time t, the simple net growth
rate is
• This means gross growth rate is
1
1
X t tt
t
X Xg
X
1
1 X tt
t
Xg
X
Growth Rates of Products and Ratios
1 1 1 1 1
1
11
11
(1 )(1 )
(1 )
(1 )
X Yt t t t tt t t t t
t t t t t
t tX
t tt t tYt
t t ttt
tt
Z X Y X YZ X Y g g
Z X Y X Y
X XZ YX X g
ZY Y gXZ
YY
Rule of Thumb
• The growth rate of a product is approximately
equal to the sums of the growth rates of the
elements of a product.
• The growth rate of a ratio is approximately
equal to the difference between the growth rate
of the numerator and the denominator.
Z X Y
t t t t t tZ X Y g g g
Z X Ytt t t t
t
XZ g g g
Y
• Measuring stick of value is prices of goods in
terms of money, but arbitrary changes in the
stock of money arbitrarily change prices/the
measure of value over time.
• Comparing value across time requires
abstracting from those arbitrary changes in
value.
Value vs. Volume
• Consider the sales of a hypothetical single good
(called widgets) production firms.
• Value of sales (call v) is the product of the
number or volume of goods solds (call q) and the
price of each good (call p)
• Growth of value can be decomposed into growth
of volume and growth in prices.
(1 ) (1 )(1 )v p qg g g
Aggregate Growth • Macroeconomic aggregates such as GDP and
its sub-totals are the sum of values of sales (or
purchases) from different firms.
• We also decompose the growth of the
aggregates into growth in prices (inflation) and
growth in volume (output).
t i i i
i i
V v p q
(1 ) (1 )(1 )V P Q
t t tg g g
Volume Growth • Calculate growth as if prices are unchanged.
1. Divide goods into K distinct sub-categories.
2. Construct representative market basket of each
category of goods, k.
3. Sample goods of type k to find average price of
market basket k at time t and at time t-1:
1,k k
t tp p
Example: US Non Durables
Line 2009 2010 2009 2010
25 Nondurable goods v_k P^k[2005]
26 Food and beverages purchased for off-premises consumption
27 Food and nonalcoholic beverages purchased for off-premises consumption (4) 645.3 659.4 113.948 114.267
28 Alcoholic beverages purchased for off-premises consumption (5) 100.4 106.6 110.724 111.271
29 Food produced and consumed on farms (6) 0.3 0.3 89.632 104.583
30 Clothing and footwear
31 Garments
32 Women's and girls' clothing (10) 153.7 161.2 97.647 96.743
33 Men's and boys' clothing (11) 91.1 95.5 97.835 96.378
34 Children's and infants' clothing (12) 13.1 13.7 98.038 97.776
35 Other clothing materials and footwear (13 and 17) 60.3 63.9 103.1 104.15
36 Gasoline and other energy goods
37 Motor vehicle fuels, lubricants, and fluids (59) 279.1 331.4 106.069 125.441
38 Fuel oil and other fuels (29) 20.3 22.7 114.129 133.927
39 Other nondurable goods
40 Pharmaceutical and other medical products (40 and 41) 316.8 330.6 111.241 115.239
41 Recreational items (parts of 80, 92, and 93) 132.8 141.4 100.453 97.161
42 Household supplies (parts of 32 and 36) 110.1 114.1 106.979 106.155
43 Personal care products (part of 118) 89.9 95.2 105.085 104.081
44 Tobacco (127) 87.9 94.4 144.831 160.563
45 Magazines, newspapers, and stationery (part of 90) 58.8 64.6 109.044 109.929
Value v 2159.9 2295
1+gV 1.062549
Last Revised on: August 08, 2011
Table 2.4.4. & 2.4.5. Personal Consumption Expenditures by Type of Product & Price IndexesBureau of Economic Analysis
• Note: Data does not report only
reports price indices relative to reference
price level for subtype k at a fixed reference
year (in this case, 2005).
4. Convert value of goods k at time t into time t-
1 prices
1 11 1
[ ]
[ ]
k k k kk k k k kt t t tt t t t tk k k
t t t
P Ref p p qv v p p q
P Ref p p
1,k k
t tp p
[ ] 100k
k tt k
Ref
pP Ref
p
Notes on Price Indices: New Goods
• Market baskets used to construct don’t
need to stay the same over long-periods.
• New goods can be introduced as long as
matched goods are compared in every t and t-1
period.
1
k
tk
t
p
p
Notes on Price Indices: Quality • Some categories of goods (computers, cars)
observe marked changes in quality over time.
• Price growth rates for these components often
reflect the price growth for certain
characteristics (e.g. MHz,GB HD, etc.). These
are referred to as hedonic price indices.
Line 2009 2010 2009 2010
25 Nondurable goods v_k P^k[2005] q_t*p_t-1
26 Food and beverages purchased for off-premises consumption
27 Food and nonalcoholic beverages purchased for off-premises consumption (4) 645.3 659.4 113.948 114.267 657.5591
28 Alcoholic beverages purchased for off-premises consumption (5) 100.4 106.6 110.724 111.271 106.076
29 Food produced and consumed on farms (6) 0.3 0.3 89.632 104.583 0.257113
30 Clothing and footwear
31 Garments
32 Women's and girls' clothing (10) 153.7 161.2 97.647 96.743 162.7063
33 Men's and boys' clothing (11) 91.1 95.5 97.835 96.378 96.94373
34 Children's and infants' clothing (12) 13.1 13.7 98.038 97.776 13.73671
35 Other clothing materials and footwear (13 and 17) 60.3 63.9 103.1 104.15 63.25578
36 Gasoline and other energy goods
37 Motor vehicle fuels, lubricants, and fluids (59) 279.1 331.4 106.069 125.441 280.2215
38 Fuel oil and other fuels (29) 20.3 22.7 114.129 133.927 19.34433
39 Other nondurable goods
40 Pharmaceutical and other medical products (40 and 41) 316.8 330.6 111.241 115.239 319.1305
41 Recreational items (parts of 80, 92, and 93) 132.8 141.4 100.453 97.161 146.1909
42 Household supplies (parts of 32 and 36) 110.1 114.1 106.979 106.155 114.9857
43 Personal care products (part of 118) 89.9 95.2 105.085 104.081 96.11833
44 Tobacco (127) 87.9 94.4 144.831 160.563 85.15067
45 Magazines, newspapers, and stationery (part of 90) 58.8 64.6 109.044 109.929 64.07993
Value v 2159.9 2295
Table 2.4.4. & 2.4.5. Personal Consumption Expenditures by Type of Product & Price IndexesBureau of Economic Analysis
Last Revised on: August 08, 2011
Volume Growth cont.
5. Sum the value of time t goods in time t-1
prices.
6. Divide by the value of time t-1 goods in t-1
prices.
11[ ]
kk k kt
t t t tkk kt
pQ t-1 prices v p q
p
1
1 1 1
[ ]1
k k
t tQ t kt k k
t t tk
p qQ t-1 pricesg
V p q
Candyland
GDP Volume Growth: 2005
2005 2004
P Q P Q
Kitkat 8 150 6 135
M&Ms 10 150 4 135
GDP
Volume Growth
Candyland
GDP Volume Growth: 2005
2005 2004
P Q P Q
Kitkat 8 150 6 135
M&Ms 10 150 4 135
GDP 2700 1350
Volume Growth 111.11 100
Line 2009 2010 2009 2010
25 Nondurable goods v_k P^k[2005] q_t*p_t-1
26 Food and beverages purchased for off-premises consumption
27 Food and nonalcoholic beverages purchased for off-premises consumption (4) 645.3 659.4 113.948 114.267 657.5591
28 Alcoholic beverages purchased for off-premises consumption (5) 100.4 106.6 110.724 111.271 106.076
29 Food produced and consumed on farms (6) 0.3 0.3 89.632 104.583 0.257113
30 Clothing and footwear
31 Garments
32 Women's and girls' clothing (10) 153.7 161.2 97.647 96.743 162.7063
33 Men's and boys' clothing (11) 91.1 95.5 97.835 96.378 96.94373
34 Children's and infants' clothing (12) 13.1 13.7 98.038 97.776 13.73671
35 Other clothing materials and footwear (13 and 17) 60.3 63.9 103.1 104.15 63.25578
36 Gasoline and other energy goods
37 Motor vehicle fuels, lubricants, and fluids (59) 279.1 331.4 106.069 125.441 280.2215
38 Fuel oil and other fuels (29) 20.3 22.7 114.129 133.927 19.34433
39 Other nondurable goods
40 Pharmaceutical and other medical products (40 and 41) 316.8 330.6 111.241 115.239 319.1305
41 Recreational items (parts of 80, 92, and 93) 132.8 141.4 100.453 97.161 146.1909
42 Household supplies (parts of 32 and 36) 110.1 114.1 106.979 106.155 114.9857
43 Personal care products (part of 118) 89.9 95.2 105.085 104.081 96.11833
44 Tobacco (127) 87.9 94.4 144.831 160.563 85.15067
45 Magazines, newspapers, and stationery (part of 90) 58.8 64.6 109.044 109.929 64.07993
Value v 2159.9 2295 Q[t-1 prices] 2225.8
1+gQ 1.030491
Table 2.4.4. & 2.4.5. Personal Consumption Expenditures by Type of Product & Price IndexesBureau of Economic Analysis
Last Revised on: August 08, 2011
Contribution to Growth • Each sub-component contribution to the growth
rate is the product of its importance in
expenditure at time t-1 and the size of its own
growth rate
• For each component k, this contribution can be
calculated as:
1
kk q
t tw g
1 1
11
1 1 1
1 1
% 100%
[ ]
[ ]100% 100%
kk k q
t t t
kk ktt tk k k k k
t t t t t
t t
Cg w g
P Refv v
p q p q P Ref
V V
Line 2009 2010 2009 2010
25 Nondurable goods v_k P^k[2005] q_t*p_t-1
26 Food and beverages purchased for off-premises consumption Ck gQ%
27 Food and nonalcoholic beverages purchased for off-premises consumption (4) 645.3 659.4 113.948 114.267 657.5591 0.57%
28 Alcoholic beverages purchased for off-premises consumption (5) 100.4 106.6 110.724 111.271 106.076 0.26%
29 Food produced and consumed on farms (6) 0.3 0.3 89.632 104.583 0.257113 0.00%
30 Clothing and footwear
31 Garments
32 Women's and girls' clothing (10) 153.7 161.2 97.647 96.743 162.7063 0.42%
33 Men's and boys' clothing (11) 91.1 95.5 97.835 96.378 96.94373 0.27%
34 Children's and infants' clothing (12) 13.1 13.7 98.038 97.776 13.73671 0.03%
35 Other clothing materials and footwear (13 and 17) 60.3 63.9 103.1 104.15 63.25578 0.14%
36 Gasoline and other energy goods
37 Motor vehicle fuels, lubricants, and fluids (59) 279.1 331.4 106.069 125.441 280.2215 0.05%
38 Fuel oil and other fuels (29) 20.3 22.7 114.129 133.927 19.34433 -0.04%
39 Other nondurable goods
40 Pharmaceutical and other medical products (40 and 41) 316.8 330.6 111.241 115.239 319.1305 0.11%
41 Recreational items (parts of 80, 92, and 93) 132.8 141.4 100.453 97.161 146.1909 0.62%
42 Household supplies (parts of 32 and 36) 110.1 114.1 106.979 106.155 114.9857 0.23%
43 Personal care products (part of 118) 89.9 95.2 105.085 104.081 96.11833 0.29%
44 Tobacco (127) 87.9 94.4 144.831 160.563 85.15067 -0.13%
45 Magazines, newspapers, and stationery (part of 90) 58.8 64.6 109.044 109.929 64.07993 0.24%
Value v 2159.9 2295 Q[t-1 prices] 2225.81+gQ 1.030491
3.05%
Table 2.4.4. & 2.4.5. Personal Consumption Expenditures by Type of Product & Price IndexesBureau of Economic Analysis
Last Revised on: August 08, 2011
Volume Indices
• To compare the level of aggregate quantities at different points in time, total up the growth that appears in between periods.
1. Calculate the growth rate for all periods using the prices from the immediately previous periods to adjust current values.
2. Choose a reference period, ref, preferably in a recent period and set a chained index, CI, equal to 100 in that period
Q
tg
[ ] 100Q
RefCI Ref
Chained Index
3. Define the index recursively in all periods
using the equation
The relationship between the levels of the chain
volume index at any two points t and t+T is
the product of the growth between the two
points.
1[ ] (1 ) [ ]Q Q Q
t t tCI Ref g CI Ref
1 2 3
[ ](1 ) (1 ) (1 ) .... (1 )
[ ]
QQ Q Q Qt Tt t t t TQ
t
CI Refg g g g
CI Ref
http://www.bea.gov
Real Quantities, Chained Prices
• For comparison’s sake, quantities are often
reported in $ terms using the quantity index to
determine how it stands relative to the
reference year.
[ ][ ]
[ ] 100
QChain tt RefQ
Ref
CI RefQ Ref V
CI Ref
Quantity Index 2003 94.232
Quantity Index 2005 100
Value 2005 1,953.40
Quantity 2003 1,840.73
Chained Dollars
Nondurable Goods
0
500
1000
1500
2000
2500
1995
1997
1999
2001
2003
2005
2007
2009
Bil
lion
US
$
Chained Dollars Current Dollars
• Some macroeconomic aggregates are difficult
to chain link as they are possibly negative
including net exports or change in inventories.
• Estimate real NX – Calculate chained
quantities of exports and imports and subtract
imports from exports to calculate real NX.
• Estimate real CSX – Calculate chained
quantities of GDP and GDP net of CSX.
Estimate real CSX with the difference.
Implicit Price Deflator
• An estimate of the price level is the ratio of the value to
the quantity in chained dollars.
[ ]
100[ ]
Chain
t
t
Chain
t
P Ref
V
Q Ref
HK$ million HK$ million
2009=
100
1,317,650 1,168,506 112.8
1,299,218 1,174,317 110.6
1,277,314 1,195,936 106.8
1,234,761 1,231,886 100.2
1,291,923 1,336,185 96.7
1,382,590 1,430,815 96.6
1,475,357 1,531,255 96.3
1,615,574 1,629,092 99.2
1,677,011 1,666,664 100.6
1,622,322 1,622,322 100.0
1,743,858 1,735,399 100.5
2000
Year
GDP
Implicit
price
deflatorAt current
market prices
In chained (2009)
dollars
2001
2002
2003
2004
2005
2006
2007
2008
2009r
2010r
Price Growth
• The growth rate of prices is defined implicitly.
• Net aggregate price growth is the weighted
average of the price growth of individual
components.
11
1
VP tt Q
t
gg
g
1 .0.0
1 .0 0
V
t
Q
t
g 1 625491 3111
g 1 3 491
Ex.
1
1
1 1 1 1 1
1 11 1
1
1
1
[ ][ 1] [ 1] [ 1] [ 1]
k kpt t
k kk k k kVt tt t t tt kk k
k k k kQ k k
t t t tt t tk k k
k k k k kk k k k k kt t t t tt t t tP kk k t t
t kkt t t t t
w g
p qp q p qg
p q p qg p q
q p p p pp q p q p qg
Q t Q t Q t Q t p
1442 443144442 44443
Consumer Price Index
• The CPI is the price of a representative market
basket of goods relative to the price of that same
basket during a benchmark/base year (multiplied
by 100).
100t
Cost of Market Basket in year tCPI
Cost of Market Basket in Base year
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005
CPI
GDP Deflator
Hong Kong’s History of Prices
• CPI coverage is smaller than GDP deflator.
• Market basket stays constant unlike PCE
deflator so may not reflect what people are
actually buying.
• CPI can be easily measured comes much more
often.
1
1
% 100%P t tt
t
P Pg Inflation Rate
P
Hong Kong CPI
0
20
40
60
80
100
120
140
19
80
M0
1
19
81
M0
5
19
82
M0
9
19
84
M0
1
19
85
M0
5
19
86
M0
9
19
88
M0
1
19
89
M0
5
19
90
M0
9
19
92
M0
1
19
93
M0
5
19
94
M0
9
19
96
M0
1
19
97
M0
5
19
98
M0
9
20
00
M0
1
20
01
M0
5
20
02
M0
9
20
04
M0
1
20
05
M0
5
20
06
M0
9
20
08
M0
1
20
09
M0
5
20
10
M0
9
Ind
ex
[O
ct.
20
04
-Se
p.2
00
5]
CPI CPI (A) CPI (B) CPI ©
Department of Census and Statistics
• Inflation: prices are growing
• Disinflation: inflation is slowing down but still positive
• Deflation: inflation is negative and prices are actually
dropping.
Hong Kong CPI
-6
-4
-2
0
2
4
6
8
10
12
14
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
%
http://www.imfstatistics.org/imf/
Inflation
Disinflation
Deflation
Adjusting for Inflation
• We can use price indices to “adjust for inflation” - converting values measured in money into values measured in the prices of some reference year, r.
• Measured in $, observed at time t: Nt
• Price level at time t: Pt
• Price level in reference year Pr
• Measure adjusted for inflation –
$r rt t
t
PN N
P
r$
tN
Housing Price: Hong Kong Island
• Compare the price of housing in HK average price of an apartment on HK Island with an area between 100m2 and 160m2
– in September 2009 : HK$173,762 /m2
– in December 1982: HK$14,742/m2
• How much did an apartment cost back then when expressed in today’s dollars?
Housing Price: Hong Kong Island
• The Hong Kong CPI (2000=100) was 35.5 in
December 1982 and 109.2 in December 2009.
• Calculate:
• In real terms, luxury housing in 2009 is
almost 4 times as expensive as in 1982!
$ 109.2$14,742 $45,347.2
35.5
r rt t
t
PN N
P
GDP per Capita
• Population
changes over
time
• To assess
income levels
over time, we
divide by
population
[ ]t
GDP per Capita
GDP Chain
Population
Singapore
Average Growth Rate 2001-2010
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
GDP Grow th GDP per Capita
%
Link
Quarterly Data • Data on national aggregates is usually
calculated quarterly, at three month intervals.
Index quarters by tq. Volume quarter-on-quarter
growth rates can be defined
• Quarterly growth rates are often reported at
annual rates.
1
1 1 1
[ 1]1
k k
tq tqtqQ ktq k k
tq tq tqk
p qQ tqg
V p q
4
[ ]% 1 1 100%Q Q
tq tqg AR g
Net Growth Rate • The net growth rate is conceptually equivalent to a
weighted average of growth rates of component
parts.
• Growth rates are usually written in % terms.
Q
tg
1
1 11 1 1
1 1 1 1 1
11 11
1 1
k
k kqt t
k k kk k k k
t t tt t t tQ kk kt k k k k
t t t t tk k
k kk kt t k qt t
t tkk kt t
w g
p q qp q p qg
p q p q V
q qp qw g
V q
1442 44314442 4443
% 100%X X
t tg g
Quarterly Series
• Quarterly volume indexes created by choosing
a reference quarter as 100 then chaining
• Chained quantity estimates are shown as
relative to the reference year so as
1[ ] (1 ) [ ]Q Q Q
tq tq tqCI Refq g CI Refq
[ ][ ]
100
Q
tqChain
tq Ref
CI RefQ Ref V
Fisher Ideal Volume Growth 4. Convert value of goods k at time t into time t-1 prices
5. Sum the value of time t goods in time t-1 prices.
6. Use weighted geometric average of two growth rates.
1 11 1
1 1
k k kk k k kt t tt t t tk k
t t
p p qv p p q
p p
1 1 1
1
[ ]k
k k ktt t t tkk k
t
pQ t prices v p q
p
1
1 1 1 1 1
[ ]1 [ ]
[ ]
k k k k
t t t tQ t t k kt k k k k
t t t t t tk k
p q p qV Q t-1 pricesg FI
Q t prices V p q p q
Constant Price Aggregates
• An easier way to compare quantity aggregates
is to measure the quantities of all goods in
terms of the prices prevailing in a single base
year.
• Not recommended anymore because growth
rates may differ greatly depending on which
base year is used.
[ ][ ]
[ ]
k k k
Ref Ref Refk k k k k k
t t t t t Ref tk k kk k k kt t t
P Ref p pQ Ref v v p q p q
P Ref p p
Contribution to Growth
Expenditures
• Sources of Demand is often the focus of
attention.
• Often important to calculate contribution to
GDP growth of k =
PCE,GCE,GFCF,CSX,NX.
11
1
[ ]
[ ]100%
kk ktt tk
t
t
P Refv v
P Ref
V
• Problem: CSX and NX are often negative.
• Solution: CSX
– Calculate the contribution of Gross Capital Formation to GDP growth;
– Calculate the contribution of Gross Fixed Capital Formation to GDP growth
– CSX is difference between GCF and GFCF so the difference between GCF contribution to growth and GFCF contribution is CSX constribution.
Example: Using UN NA data to find
contribution of CSX to GDP growth
1. Calculate Implicit Price Deflators
Gross Fixed
GDP 2008 Gross Capital Capital Changes in
14369.4 Formation Formation Inventories
GDP by Expenditure, current prices - National currency Billions$
2008 2541.4 2576.0 -34.6
2009 1926.3 2068.2 -142.0
GDP by Expenditure, at constant 2005 prices - National currency Billions$
2008 2340.1 2368.6 -28.5
2009 1812.1 1934.1 -122.0
Gross Fixed
Gross Capital Capital Changes in
Formation Formation Inventories
Implicit Price Levels
2008 108.6 108.8 121.4
2009 106.3 106.9 116.4
[ ] 100[ ]
kk t
ktt
vP Ref
q Ref
2. Calculate the contribution of Gross
Capital Formation to GDP growth
3. Calculate the contribution of Gross Fixed
Capital Formation to GDP growth
4. Contribution of CSX to GDP growth
11
1
[ ] 108.6. .
[ ] 0 .100% 100%.
kk ktt tk
t
t
P Refv v 1926 3 2541 4
P Ref 1 6 3 3.99%V 14369 4
108.80 . .0
0 .9 100%.
2 68 2 25761 6 3.29%
14369 4
3.99% 3.29% .70%