EC210 ~ MACRO

[e]

EC210 ~ MACRO

[e]

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[e]

Ec210 MACRO (Tom C)

Comments to:
t(.)e(.)cunningham(at)lse(.)ac(.)uk

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<h2 style="margin-top: 0px;">Ec210 MACRO (Tom C)</h2>
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<ol>
<li> <a href="./?body=Home">Home</a><br />
<li> <a href="./?body=Handout">Handout</a>
<li> <a href="./?body=Notes">Economic Modelling</a>
<li> <a href="./?body=FirstTerm">First Term Summary</a>
<li> <a 
href="./?body=Definitions">Definitions</a>
<li> <a href="./?body=Models">Models</a>
<li> <a href="./?body=Issues">Issues</a>
<li> <a href="./?body=PDVs">Present Discounted Values</a>
<li> <a href="./?body=Questions">Questions</a>
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<p>Comments to:<br /> t(.)e(.)cunningham(at)lse(.)ac(<b></b>.)uk</p>

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[e]

IMPORTANT: This is not official LSE teaching material, use at your own risk!

[e]

DEFINITIONS

National Accounting

GDP	C + I + G + NX	C = Consumption I = Investment G= Government Expenditure NX = Net Exports
GNP	C + I + G + NX + NR	NR= Net Foreign Receipts
Procyclical	Tends to move in the same direction as output (Y)	E.g., Consumption, Investment
Countercyclical	Tends to move in the opposite direction as output (Y)	E.g., Unemployment
CPI	SUM(g_i · p_i,t)	The products g_i are from a 'basket' of typical goods, which stays fixed over time.
Real GDP	SUM(x_i,t · p_i,0)	The x_i,t represent the quantities of all goods produced in that year. The prices are taken either from a base year (t=0), or from a chain-linked index (more complicated).
GDP deflator	(Nominal GDP) / (Real GDP)
Current Account	Net exports + Net investment income
Capital Account	Net increase in foreign holdings of domestic assets	Should be exactly opposite of current account

Money

Currency Demand	M^d = Cu + D c = Cu / M^d	Cu = Currency D = Bank deposits c = proportion of consumers' money in cash
High-Powered Money	H = Cu + R	R= Bank reserves In the US around \$800B
M1	cash + demand deposits	In the US around \$1.4T
M2	cash + demand deposits + savings	In the US around \$7.5T
Reserve Ratio	θ = R/D	In the US the reserve ratio is law, set at around 10%, requiring banks keep a certain fraction of deposits as reserves. In the UK it differs by bank.

Labour Market

(See the ILO for cross-country labour market data using consistent definitions.)

Labour Force	LF = E + U	LF = Labour Force E = Employed U = Unemployed (of working age, actively looking for work)
Unemployment Rate	u = U / (E + U)
Participation Rate	p = (U+E)/(U+E+I)	I = Inactive (of working age but not looking for work) EU25 in 2005, 80% for men, 60% for women (Eurostat report)
Structural Unemployment	Due to wage being above market-clearing level	(There are different theories about why this might happen.)
Frictional Unemployment	Just due to workers waiting to find a suitable job

Others

Recession (2 quarters negative GDP growth)
RPI (Retail Price Index) uses a broader basket than the CPI
RPIX (Retail Price Index eXcluding mortgage payments)

<h3>National Accounting</h3>
<table cellpadding=4 cellspacing=0>

<tr><td width=100><b>GDP</b></td>
 <td width=200>C + I + G + NX</td>
 <td>C = Consumption <br />I = Investment<br />G= Government Expenditure<br />NX = Net Exports</td>
</tr>

<tr><td><b>GNP</b></td>
 <td>C + I + G + NX + NR</td>
 <td>NR= Net Foreign Receipts</td>
</tr>

<tr><td><b>Procyclical</b></td>
 <td>Tends to move in the same direction as output (Y)</td>
 <td>E.g., Consumption, Investment<br>
</tr>

<tr><td><b>Countercyclical</b></td>
 <td>Tends to move in the opposite direction as output (Y)</td>
 <td>E.g., Unemployment<br>
</tr>

<tr><td><b>CPI</b></td>
  <td>SUM(g<sub>i</sub> &middot; p<sub>i,t</sub>)</td>
  <td>The products g<sub>i</sub> are from a 'basket' of typical goods, which stays fixed over time. </td>
</tr>

<tr><td><b>Real GDP</b></td>
  <td>SUM(x<sub>i,t</sub> &middot; p<sub>i,0</sub>)</td>
  <td>The x<sub>i,t</sub> represent the quantities of all goods produced in that year. The prices are taken either from a base year (t=0), or from a chain-linked index (more complicated).</td>
</tr>

<tr><td><b>GDP deflator</b></td>
  <td>(Nominal GDP) / (Real GDP)</td>
  <td></td>
</tr>

<tr><td><b>Current Account</b></td>
  <td>Net exports + Net investment income</td>
  <td> </td>
</tr>

<tr><td><b>Capital Account</b></td>
  <td>Net increase in foreign holdings of domestic assets</td>
  <td>Should be exactly opposite of current account</td>
</tr>
</table>

<h3>Money</h3>
<table cellpadding=4 cellspacing=0>
<tr><td width=100><b>Currency Demand</b></td>
  <td width=200>M<sup>d</sup> = Cu + D<br />
          c = Cu / M<sup>d</sup>
  <td>Cu = Currency<br />
           D = Bank deposits<br />
           c = proportion of consumers' money in cash</td>
</tr>

<tr><td><b>High-Powered Money</b></td>
  <td>H = Cu + R</td>
  <td>R= Bank reserves <br />
         In the US <a href="http://www.federalreserve.gov/releases/h3/Current/">around \$800B</a></td>
</tr>

<tr><td><b>M1</b></td>
  <td>cash + demand deposits</b></td>
  <td>In the US <a href="http://www.federalreserve.gov/releases/h6/Current/">around \$1.4T</a></td>
</tr>

<tr><td><b>M2</b></td>
  <td>cash + demand deposits + savings</b></td>
  <td>In the US <a href="http://www.federalreserve.gov/releases/h6/Current/">around \$7.5T</a></td>
</tr>

<tr><td><b>Reserve Ratio</b></td>
  <td>&theta; = R/D</td>
  <td>In the US the reserve ratio is law, set at around 10%, requiring banks keep a certain fraction of deposits as reserves. In the UK it differs by bank. </td>
</tr>

</table>

<h3>Labour Market</h3>
 &nbsp; (See the ILO for <a href="http://www.ilo.org/public/english/employment/strat/kilm/index.htm">cross-country labour market data</a> using consistent definitions.)
<table cellpadding=4 cellspacing=0>
<tr><td width=100><b>Labour Force</b></td>
  <td width=200>LF = E + U</td>
  <td>
           LF = Labour Force<br />
           E = Employed<br />
           U = Unemployed (of working age, actively looking for work)
   </td>
</tr>

<tr><td><b>Unemployment Rate</b></td>
  <td>u = U / (E + U)</td>
  <td></td>
</tr>

<tr><td><b>Participation Rate</b></td>
  <td>p = (U+E)/(U+E+I)</td>
  <td>
           I = Inactive (of working age but not looking for work)<br />
EU25 in 2005, 80% for men, 60% for women (<a href="http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-NK-06-002/EN/KS-NK-06-002-EN.PDF">Eurostat report</a>) </td>

<tr><td><b>Structural Unemployment</b></td>
  <td>Due to wage being above market-clearing level</td>
  <td>(There are different theories about why this might happen.)</td>
</tr>

<tr><td><b>Frictional Unemployment</b></td>
  <td>Just due to workers waiting to find a suitable job</td>
  <td> </td>
</tr>

</tr>

</table>

<h3>Others</h3><ul>
  <li> Recession (2 quarters negative GDP growth)
  <li> RPI (Retail Price Index) uses a broader basket than the CPI
  <li> RPIX (Retail Price Index eXcluding mortgage payments)
</ul>

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