Deck 2: Measuring and Accounting for the Output of a Nation: GDP

Question 1

Go to FRED (the Federal Reserve Economic Database) and find three different measures of Chinese GDP. Define each measure based on its frequency (quarterly vs. annual), basis for measure (e.g., expenditure approach), and whether it is expressed in real or nominal terms.

Answer 1

i. Current Price Gross Domestic Product in China
2010:Q2: 17,284.0* Billions of Chinese Yuans (+ see more)
Quarterly, Seasonally Adjusted, CHNGDPNQDSMEI, Updated: 2011-04-01 3:32 PM CDT
ii. Gross Domestic Product by Expenditure in Constant Prices: Total Gross Domestic Product for China
2012: 47,243,648,500,000.00 Chained 2000 National Currency Units (+ see more)
Annual, Not Seasonally Adjusted, NAEXKP01CNA652S, Updated: 2015-03-04 9:32 AM CST
iii. Total Purchasing Power Parity Converted GDP, G-K method, at current prices for China
2010: 11,698,415.78000 Millions of International Dollars (+ see more)
Annual, Not Seasonally Adjusted, PPPGD2CNA619NUPN, Updated: 2012-09-17 11:49 AM CDT
* Boldface indicates the key feature of how GDP is presented in each case.

Question 2

Explain why during an economic downturn, U.S. GDP might actually be underestimated while Chinese GDP might actually be overestimated.

Answer 2

Local authorities in China have been rewarded/promoted based on how well they meet numerical growth targets. Since GDP data is based on output (value-added production) primarily in China (rather than expenditures) and so there is a tendency for local officials to report more output in bad times so as to appear to be meeting the Five Year Plan targets. Meanwhile in the United States, bonuses are typically not rewarded during a recession, but are during an upturn-the same story applies to tax payments. Thus, managers at companies attempt to shift costs into bad years so as to sweep all the bad news into years where it will not matter anyhow. This tends to make the bad year look worse than it actually is.

Question 3

Using the table below (mind the footnote at the bottom of the table):
a. Calculate GDP and GNP based on a method used primarily in China. Identify the method.
b. Calculate GDP and GNP based on a method used primarily in the United States. Identify the method.

Answer 3

a. Let's use the Value-Added Method.
GDP: 2.94-.14 = 2.84 = 1.4 (materials) + 1.44 (CMM implied value-added)
GNP: 2.84-.5 x (.42+.20) = 2.53=1.4 (assume materials produced all domestic stakeholders) + 1.13 (CMM value-added domestically)
b. Income Approach:
GDP = 0 Since No income generated in the United States.
GNP = .31 Gross Dividends paid to American shareholder (see calculation in (a))

Question 4

Assume that China's entire tertiary sector (services) is non-traded. Use the share of services in China's GDP statistics presented in this chapter to help answer some of the following questions.
a. Is China's relative price of services to primary and secondary output prices higher or lower than in the United States (use your good judgment)?
b. Assume that the exchange rate is at purchasing power parity (PPP) for traded goods. If we use that exchange rate to convert Chinese GDP into U.S. dollars, how would that distort your estimate of Chinese GDP given your answer in (a)?
c. Suggest a better way to approach the problem of converting Chinese GDP into U.S. dollars.
d. Observe Data (PPPTT2CNA618NUPN) in FRED. How does this approach compare to your answer in (c)? Apply the most recent PPP exchange rate found in this series to nominal Chinese GDP. How much larger is China's US$ GDP compared to when you use the actual exchange rate for the same period?

Question 5

If a 2,000- square-foot apartment in New York sells for US$1.5 million, what is its per-square-meter RMB price and total RMB price. Be sure to use proper Chinese numerical units.

Question 6

Using the table found below:
a. Explain the classical relationship between other stakeholders and shareholders in a capitalist system.
b. Explain the relationship among the various stakeholders in China. Compare and contrast to your answer in (a).
c. Using one of the key drivers for China presented in Chapter 1, explain the difficulties of managing a mixed-market economy such as China's.