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simple GDP question

December 29th, 2016, 2:03 pm

 If we assume that for fixed salaries all prices will increase on 3% whether it will lead to 3%  growth of GDP?
 
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Alan
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Re: simple GDP question

December 29th, 2016, 3:32 pm

At first, I said, 'many people consume 100% of their salaries. If their salaries stay fixed, how can they consume more?'

But, then I got slightly confused because Wikipedia said, in GDP accounting, unsold goods are treated as bought by the producer. But producers would have to quickly cut back, keeping their nominal total revenues (from that class of consumer) the same. So, producers of goods and sellers of services still couldn't sell more to those maxed-out consumers than their salaries allowed. Since there's no reason to expect more flexible consumers to now consume 'more than 3% more', I think my initial implicit answer was correct: 'no'. 
Last edited by Alan on December 29th, 2016, 4:21 pm, edited 1 time in total.
 
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Re: simple GDP question

December 29th, 2016, 4:18 pm

Thanks, Alan. I thought about a particular prediction over next 2017 year. Intuitively one can assume that 3% growth is expected speaking broadly by producing 3% more than for 2016. Such intuition based on assumption that prices of the products remain about the same. On the other hand what does expected GDP would be if prices will growth on the same 3%. It seems that Wiki explanation is related more to calculation of realized GDP though I could be wrong.
 
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Re: simple GDP question

December 29th, 2016, 4:31 pm

Well, there's nominal and real GDP growth. Nominal growth include general inflation (prices and salaries). Real growth adjusts for that, leaving effects due to population increases, productivity growth, etc.  GDP per capita adjusts for the population increases.

The 2017 prediction you saw is probably for real GDP growth as that one is the standard BEA statistical release: 
https://www.bea.gov/newsreleases/nation ... 16_3rd.htm
 
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Re: simple GDP question

December 29th, 2016, 5:32 pm

I looked through quickly a few pages Measuring the Economy, A Primer on GDP and the National Income and Product Accounts they talked about measuring products at market pricing but could not find an option that they assume changes in prices for the next years. Hence intuitively they probably consider next year production in previous year prices.Hence when they calculated GDP at the end of the year inflation is an important factor though inflation basket is a quite narrow sample. Nevertheless it makes sense. 
What does it is known about national debt effect on GDP?
 
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Re: simple GDP question

December 30th, 2016, 1:23 am

For that one, suggest you browse John Cochrane's blog (http://johnhcochrane.blogspot.com/) -- perhaps the 'growth' category.
 
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Re: simple GDP question

December 30th, 2016, 2:00 am

For that one, suggest you browse John Cochrane's blog (http://johnhcochrane.blogspot.com/) -- perhaps the 'growth' category.
Thanks, it is  quite a good source for  reading about some current economics problems 
 
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Traden4Alpha
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Re: simple GDP question

December 31st, 2016, 4:01 pm

Doesn't the answer -- more generally defined in terms of the amount of GDP growth under fixed salaries but rising prices -- depend on supply chain structure?

If companies are perfectly vertically integrated, then 100% of their costs are labor which, under this scenario, are unchanging. At the end of the first year, the company's costs would be the same and the company's sales would be the same (assuming consumers have fixed household budgets, don't borrow money, & don't spend their savings to maintain unit-rate consumption) but the company's unit sales would be running 3% lower and the company's inventory would be growing. GDP would be growing.

If companies are NOT vertically integrated and their suppliers are raising prices, too, then only the far upstream companies (e.g., agricultural producers, miners, petroleum companies, etc.) would be experiencing the kind of growth mentioned in the vertically-integrated case. Downstream companies (e.g., retailers, systems integrators, contract manufacturers) would see less of this kind of growth such that the overall economy would be growing at less than 3% per annum.


Note that the case of constant $ sales, rising prices, and falling unit sales corresponds to a condition of rising consumer household efficiency. If consumers waste less and conserve more, then consumers might enjoy the same standard of living even if prices rise and unit sales fall.
 
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Re: simple GDP question

December 31st, 2016, 4:10 pm

Value is subjective. I could do a crazy 10 sec dance on YouTube and end up being a billionaire because of that. Happiness would spread around the world,.. So much value created.
 
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Alan
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Re: simple GDP question

December 31st, 2016, 9:37 pm

Doesn't the answer -- more generally defined in terms of the amount of GDP growth under fixed salaries but rising prices -- depend on supply chain structure?

If companies are perfectly vertically integrated, then 100% of their costs are labor which, under this scenario, are unchanging.  At the end of the first year, the company's costs would be the same and the company's sales would be the same (assuming consumers have fixed household budgets, don't borrow money, & don't spend their savings to maintain unit-rate consumption) but the company's unit sales would be running 3% lower and the company's inventory would be growing.  GDP would be growing.
Your analysis is certainly deeper than mine. Of course, in the vertically integrated case, one could argue that the CEO is almost certain to give himself a raise, violating the "no increase in salaries" assumption. :D
 
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Re: simple GDP question

December 31st, 2016, 10:07 pm

Doesn't the answer -- more generally defined in terms of the amount of GDP growth under fixed salaries but rising prices -- depend on supply chain structure?

If companies are perfectly vertically integrated, then 100% of their costs are labor which, under this scenario, are unchanging.  At the end of the first year, the company's costs would be the same and the company's sales would be the same (assuming consumers have fixed household budgets, don't borrow money, & don't spend their savings to maintain unit-rate consumption) but the company's unit sales would be running 3% lower and the company's inventory would be growing.  GDP would be growing.
Your analysis is certainly deeper than mine. Of course, in the vertically integrated case, one could argue that the CEO is almost certain to give himself a raise, violating the "no increase in salaries" assumption. :D
 it's from Wiki : Nominal GDP estimates are commonly used to determine the economic performance of a whole country or region, and to make international comparisons. Nominal GDP per capita does not, however, reflect differences in the cost of living and the inflation rates of the countries; therefore using a GDP PPP per capita basis is arguably more useful when comparing differences in living standards between nations. 
where The standard of living includes factors such as income, quality and availability of employment, class disparity, poverty rate, quality and affordability of housing, hours of work required to purchase necessities, gross domestic product, inflation rate, amount of leisure time every year, affordable (or free) access to quality healthcare, quality and availability of education, life expectancy, incidence of disease, cost of goods and services, infrastructure, national economic growth, economic and political stability, political and religious freedom, environmental quality, climate and safety. The standard of living is closely related to quality of life. "
Thus salaries are a part of the adjusted GDP. The standard GDP  sounds probably too general but bearing in mind its specification the income adjustment looks like can be taking into account. 
Last edited by list1 on December 31st, 2016, 10:14 pm, edited 1 time in total.
 
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Traden4Alpha
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Re: simple GDP question

December 31st, 2016, 10:08 pm

Value is subjective. I could do a crazy 10 sec dance on YouTube and end up being a billionaire because of that. Happiness would spread around the world,.. So much value created.
Indeed! Wikipedia, Craigslist, and other "free" online services arguably caused a reduction in GDP but an increase in consumer surplus.

The contribution of digital products & services to the economy and standards of living are seriously undercounted in traditional economics.
 
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Re: simple GDP question

December 31st, 2016, 10:20 pm

I am wondering how does selling bonds and buying them back in the form like QE effects on GDP value?
 
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Traden4Alpha
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Re: simple GDP question

December 31st, 2016, 10:47 pm

Doesn't the answer -- more generally defined in terms of the amount of GDP growth under fixed salaries but rising prices -- depend on supply chain structure?

If companies are perfectly vertically integrated, then 100% of their costs are labor which, under this scenario, are unchanging.  At the end of the first year, the company's costs would be the same and the company's sales would be the same (assuming consumers have fixed household budgets, don't borrow money, & don't spend their savings to maintain unit-rate consumption) but the company's unit sales would be running 3% lower and the company's inventory would be growing.  GDP would be growing.
Your analysis is certainly deeper than mine. Of course, in the vertically integrated case, one could argue that the CEO is almost certain to give himself a raise, violating the "no increase in salaries" assumption. :D
LOL! The clever CEO would use stock options to avoid it being counted as salary.

There's also the questions of population growth. Per capita salaries might be fixed but the population of consumers might be growing which creates demand. Per capita consumption might be dropping but total consumption might be flat or increasing. Productivity might be rising too or the workforce population might be growing.

Or one can construct scenarios of GDP shrinkage under fixed salaries and increasing prices such as a crisis in imported natural resources or fx rates.

There's really too many DOF to say much about what's happening here. Even if one declares ceteris paribus, there's the question of which ceteris (e.g., total sales vs. per capita sales or inventories) remain the same.