10 Economic

Statistics
How do we measure what
is going on in the
economy?

DAMIEN KING
University of the West Indies, Jamaica
How is total production measured?

How do we know whether the economy is

producing more or less?

How is inflation measured?

2
 Circular Flow of Income
Outline
Defining GDP

Measuring GDP

Measuring Inflation

3
10.1 The Circular
Flow of Income
How are the various parts
of an economy connected?

DAMIEN KING
University of the West Indies, Jamaica 4
Firms

House-
holds

5
Firms Govt

House-
holds

Taxes

6
Firms Govt

House-
holds
Financial
Sector

7
Firms Govt

House-
holds
Financial
Sector

8
 World

Firms Govt

House-
holds
Financial
Sector

9
 World

Firms Govt

House-
holds
Financial
Sector

10
The Covid
Pandemic,
2020

11
 Exports
Consumption
Investment

World

Firms Govt

House-
holds
Financial
Sector

Taxes
Factors
12
 World

Firms Govt

House-
holds
Financial
Sector

13
 Exports
Consumption
Investment

World

Govt

Production House-
holds
Financial
Sector

Taxes
Factors
14
 Exports
Consumption
Investment

World

Expenditure
Firms Govt

House-
holds
Financial
Sector

Taxes
Factors
15
 Exports
Consumption
Investment

World

Firms Govt

House-
holds
Income
Financial
Sector

Taxes
Factors
16
The institutions that
make up an economy
are interconnected by
payments for products,
resources, and services.

17
10.2 Defining
GDP
What does GDP measure?

DAMIEN KING
University of the West Indies, Jamaica 18
 GDP
market value of all
final goods and services
produced within a country
in a given period of time

19
 market value
of all

GDP
final goods and services
produced
within a country
in a given period of time
20
 market value
of all

GDP
final goods and services
produced
within a country
in a given period of time
21
120g 1,000kg ???
22
$8 $50 $10

23
 market value
of all

GDP
final goods and services
produced
within a country
in a given period of time
24
 market value
of all

GDP
final goods and services
produced
within a country
in a given period of time
25
$20

“Double-
$70 $190 counting”
problem

$100
26
 $20
$ Value added
$20 of all goods

$50 $100
$70

$30
$100
27
 $20
$
$20

$50 $100
$70

$30
$100 or full value of only final goods
28
 $20
$
$20 $20

$50 $100
$70 $70

$30
$100 Whatever is sold to final
consumers 29
 market value
of all

GDP
final goods and services
produced
within a country
in a given period of time
30
 market value
of all

GDP
final goods and services
produced
within a country
in a given period of time
31
$20m $30m
(value added)

32
 market value
of all

GDP
final goods and services
produced
within a country
in a given period of time
33
 market value
of all

GDP
final goods and services
produced
within a country
in a given period of time
34
 Foreign-
owned Locally-
domestic owned
production foreign
production

Locally-
owned
domestic
production
35
 Gross
Domestic
Product

36
 market value
of all

GDP
final goods and services
produced
within a country
in a given period of time
37
 market value
of all

GDP
final goods and services
produced
within a country
in a given period of time
38
 market
not value
of all

GDP
final goods and services
produced
within a country
in a given period of time
39
 GDP does
not
capture all
production

40
Illegal Activity
Cocaine, prostitution

41
Illegal Activity
Cocaine, prostitution

Non-commercial Activity
Home production, pro bono work

42
Illegal Activity
Cocaine, prostitution

Non-market Activity
Home production, pro bono work

Informal Activity
Street vendors, personal services

43
Illegal Activity
Cocaine, prostitution

Non-market Activity
Home production, pro bono work

Informal Activity
Street vendors, personal services

Externalities
Environmental destruction, tree planting

44
Illegal Activity
Cocain, prostitution

Non-market Activity
Home production, pro bono work

Informal Activity
Street vendors, personal services

Externalities
Environmental destruction, resource depletion, “bads”

Non-economic welfare influencers

Public health, Crime

45
 Illegal Activity
GDP does Cocain, prostitution

not Non-market Activity

Home production, pro bono work

capture all Informal Activity

production Street vendors, personal services

Externalities
Environmental destruction, tree planting

Non-economic welfare influencers

Public health, Crime

46
GDP is a measure of
large-scale,
commercial, domestic
production, and serves
as a proxy for standard-
of-living.
47
10.3 Measuring
GDP
How is GDP measured?

DAMIEN KING
University of the West Indies, Jamaica 48
ADB projects Indonesia’s economy
to grow 2.5% in 2020
Indonesia’s economy is expected to grow by
only 2.5 percent this year, from a four-year
low of 5.02 percent in 2019, according to a
new Asian Development Bank (ADB)
report. The situation, caused largely by the
COVID-19 outbreak, is expected to
gradually improve in 2021.
ADB’s flagship annual economic
publication titled "Asian Development
Outlook 2020" indicates that the COVID-19
pandemic, along with lower commodity
prices and volatile financial markets, will
have severe implications for the global
economy and Indonesia this year, with the
economies of the country’s key trading
partners expecting to suffer.
49
 How do we know

?
when an economy has
grown?

50
51
 GDP at
Current
prices
2019 10 $100
5 $200
$1,000 + $1,000 = $2,000

2020 12 $110
3 $250

$1,320 + $750 = $2,070

2021 12 $120
5 $240
$1,440 + $1,200 = $2,640
52
 GDP at
Current
prices
2019 10 $100
5 $200
$1,000 + $1,000 = $2,000

2020 12 $110
3 $250

$1,320 + $750 = $2,070

2021 12 $120
5 $240
$1,440 + $1,200 = $2,640
53
 GDP at Real
Constant GDP
prices
2019 10 $100
5 $200
$1,000 + $1,000 = $2,000

2020 12 $100
$110
3 $200
$250

$1,200 + $600 = $1,800

2021 12 $100
$120
5 $200
$240
$1,200 + $1,000 = $2,200
54
55
We estimate how much
an economy has grown
by calculating GDP in
each year using the
prices of single year.

56
10.4 Measuring
Inflation
How is inflation
measured?

DAMIEN KING
University of the West Indies, Jamaica 57
 What is the rate at

?
which prices are rising,
on average?

58
Process starts with a
survey to determine the
commodities bought by
the typical consumer.
The “consumer basket”

59
New consumer price index basket is
unveiled
The Namibia Statistics Agency (NSA) announced the reweighting and
rebasing of the consumer price index (CPI) in mid-November, including a
sharp reduction in the previously heavy weighting accorded to food and
non‑alcoholic beverages.
The food
The food and
and non non‑beverages
‑alcoholic alcoholic beverages
category was previously the
category… , with
predominant influence a weighting
on overall inflation, withof just under
a weighting of just under
30% in the inflation basket. This has now been reduced by almost half to
30%
just overin the…
16%. inflation
Other major changesbasket…
included a near has nowinbeen
quadrupling the
reduced… to
weighting for alcoholicjust over
beverages 16%.
and tobacco, to just under 13%; an
increase in that for housing, water, electricity, gas and other fuels, from
21% to 28%; and a reduction in that for clothing and footwear, from 5% to
3%. The weighting for transport, which tracks changes in the cost of
vehicle purchases and personal and public transport costs, was reduced
slightly to 14%.
60
 Our
Cost of
Consumer
basket
4 1 Basket

2019 $100 $600

$400 + $600 = $1,000

2020 $110 $650

$440 + $650 = $1,090

61
 Convert to Index Numbers

Cost of Consumer
Basket Price Index
Base
year 2019 $1,000 x 100 = 100
$1,000 9%
2020 $1,090 x 100 = 109
$1,000
11%
2021 $1,210 x 100 = 121
$1,000

62
 Basket not representative
CPI
Limitations Consumption adjusts to price changes

Quality improves

63
Measuring Inflation
with the GDP Deflator

64
 GDP at GDP at
Current Constant
prices prices

2019 $2,000 $2,000

2020 $2,070 $1,800

2021 $2,640 $2,200

65
 GDP at GDP at GDP
Current Constant Deflator
prices prices (index)

2019 $2,000
x 100
$2,000 = 100
 15.0%

2020 $2,070
x 100
$1,800 = 115
 4.3%

2021 $2,640
x 100
$2,200 = 120

66
 Consume GDP Producer
r Price Deflator Price
The Basket Index (index) Index

domestic, consumer

domestic, business

imported, consumer

imported, business

67
Prices indices have
uses other than the
calculation of inflation.
They can be used to
“deflate” nominal
values to get real ones.
68
 2019
Tisha Lee 160,000 / 100 = 1,600
Salary

2020
Tisha Lee 170,000 / 109 = 1,560
Salary

2021
Tisha Lee 190,000 / 121 = 1,570
Salary
69
Inflation is measured
by the changing cost of
a particular basket of
commodities.

70