THE ECONOMICS OF MONEY,BANKING, AND FINANCIAL MARKETS 652

620

PA R T V I I Monetary Theory

FINANCIAL NEWS

Aggregate Output, Unemployment, and the Price Level
Newspapers and Internet sites periodically
report data that provide information on the
level of aggregate output, unemployment, and
the price level. Here is a list of the relevant
data series, their frequency, and when they are
published.
Aggregate Output and Unemployment
Real GDP: Quarterly; published about two
months after the end of a quarter.
Industrial production: Monthly. Industrial production is not as comprehensive a measure of
aggregate output as real GDP because it measures only manufacturing output: the estimate
for the previous month is reported after about
two months.
Unemployment rate: Monthly; the estimate for a
month is reported two months later.

Price Level
GDP deflator: Quarterly. This comprehensive
measure of the price level (described in
the Web Appendix to Chapter 1) is published
at the same time as the real GDP data.
Consumer price index (CPI): Monthly. The CPI
is a measure of the price level for consumers
(also described in the Web Appendix to

Chapter 1); the value for the previous month
is published in the third or fourth week of
the following month.
Producer price index (PPI): Monthly. The PPI is
a measure of the average level of wholesale
prices charged by producers and is published
in the third or fourth week of the following
month.

ries, and other inputs to production, plus planned spending on new homes;
government spending, spending by all levels of government (federal, provincial,
and local) on goods and services (paper clips, computers, computer programming,
missiles, government workers, and so on); and net exports, the net foreign spending on domestic goods and services, equal to exports minus imports. Using the
symbols C for consumer expenditure, I for planned investment spending, G for
government spending, and NX for net exports, we can write the following expression for aggregate demandY ad:
Y ad * C + I + G + N X

Deriving the
Aggregate
Demand
Curve

(1)

Examining the effects of changes in the price level on individual components of
aggregate demand is one way to derive the aggregate demand curve. The aggregate demand curve is downward-sloping because a lower price level (P *), holding
the nominal quantity of money (M ) constant, leads to a larger quantity of money
in real terms (in terms of the goods and services that it can buy, M/P c). The larger
quantity of money in real terms (M/P c) that results from the lower price level causes
interest rates to fall (i *), as suggested in Chapter 5. The resulting lower cost of

financing purchases of new physical capital makes investment more profitable and
stimulates planned investment spending (I c). Because, as shown in Equation 1, the
increase in planned investment spending adds directly to aggregate demand (Y ad c),
the lower price level leads to a higher level of the quantity of aggregate output