Understand economics from scratch

Chapter 37 How to Gain Insight into the General Economic Trend from Financial News—Economics You Need to Learn to Understand Financial News (3)
Gross National Product (GNP for short) refers to the final result of the primary income distribution of all resident institutional units in a country (region) within a certain period (annual or quarterly).During the initial distribution process, the added value (gross domestic product) created by a country’s resident institutional units engaged in production activities is mainly distributed to the country’s resident institutional units, but part of it is also distributed in the form of labor remuneration and property income. To non-resident institutional units of the country.At the same time, part of the added value created by foreign production units is distributed to the resident institutional units of the country in the form of labor compensation and property income, thus giving rise to the concept of gross national product.It is equal to the difference between the gross domestic product plus the labor remuneration and property income from abroad minus the labor remuneration and property income paid abroad.

GNP is different from gross social output and national income: First, the scope of accounting is different.Both the gross social output value and the national income only calculate the labor results of the material production sector; while the gross national product calculates the labor results of both the material production sector and the non-material production sector.Second, the value structure is different.The total value of social output calculates the total value of social products; the gross national product calculates the value added in the process of producing products and providing services, that is, the added value, and does not calculate the value of intermediate products and intermediate labor inputs, and the national income does not calculate the value of intermediate products. The depreciation value of fixed assets is also not included, that is, only the net output value is calculated;
GNP reflects the economic level of a country.The GNP calculated at comparable prices can be used to calculate the economic development speed (economic growth rate) in different periods and regions.

There are three methods of calculating GNP:
(1) The production method (or departmental method) is to subtract intermediate products and labor consumption from the total output value (income) of each department to obtain the added value.The sum of the added value of each sector is the gross national product.

(2) Expenditure method (or final product method), that is, the sum of personal consumption expenditure, government consumption expenditure, gross domestic asset formation (including fixed capital formation and net increase or decrease in inventory), and the balance between exports and imports.

(3) The income method (or distribution method) regards the gross national product as the total added value created by various factors of production (capital, land, labor).Therefore, it must be distributed among various factors of production in the form of wages, interest, rent, profits, capital consumption, and net indirect taxes (that is, indirect taxes minus government subsidies).In this way, the gross national livelihood can be calculated by summarizing the above-mentioned items of various sectors (material production sector and non-material production sector) across the country.

Gross national product is the most important macroeconomic indicator, which refers to the sum of the value of all final products (including goods and services) expressed in currency within a certain period of time (generally 1 year) in the national economy of a country (region).

Dow Jones: A barometer of the economy
The Dow Jones Index is the oldest stock index in the world, and its full name is the stock price average index.The Dow Jones Index that people usually refer to may refer to the first group of the Dow Jones Industrial Average (DowJones industrial average) in the four groups of the Dow Jones Index.

The Dow Jones Index was first compiled in 1884 by Charles Dow, the founder of the Dow Jones Company.The original Dow Jones stock price average index is based on 11 representative stocks of railway companies, calculated and compiled using the arithmetic mean method, and published in the "Daily Newsletter" edited and published by Charles Dow himself.

The initial calculation method of the Dow Jones stock price average index is obtained by simple arithmetic average method. When encountering the ex-right and ex-dividend of stocks, the stock index will be discontinuous. After 1928, the Dow Jones stock price average changed to a new calculation method, that is, the connection technology was used when ex-rights or ex-dividends were used to ensure the continuity of the stock index, so that the stock index was perfected and gradually increased. Promoted to the world.It takes a part of representative company stocks listed on the New York Stock Exchange as the compilation object, and consists of four stock price average indexes, namely:

(1) The Dow Jones Industrial Average Index based on the stocks of 30 famous industrial companies.

(2) Dow-Jones Transportation Stock Average Index based on the stocks of 20 well-known transportation companies.

(3) The Dow Jones Public Utility Stock Average Index is based on 15 well-known representatives of American public utilities, gas companies and electric power companies.

(4) Dow Jones Composite Stock Average Index based on the stocks of 65 companies involved in the above three stock price average indexes.

Among the four Dow Jones stock indexes, the Dow Jones Industrial Average is the most famous, and its 30 constituent stocks are representatives of American blue chips.It is widely reported by the mass media and cited as a proxy for the Dow Jones Index.Subtle changes in this mysterious index bring panic or ecstasy to hundreds of millions of people. It is no longer an ordinary financial indicator, but a code name of the world's financial culture.

The index mainly reflects the overall trend of the US stock market, covering finance, technology, entertainment, retail and other industries.The Dow Jones Industrial Average is currently maintained by the editorial department of The Wall Street Journal. The selection criteria for its constituent stocks include the continuous development of constituent companies, large scale, outstanding reputation, industry representativeness, and being sought after by most investors.

As the most authoritative stock price index, the Dow Jones Index is known as the barometer of the economy for the following three reasons:

First, the stocks selected by the Dow Jones stock price average index are all representative. The issuing companies of these stocks are famous companies with important influence in the industry. Their stock prices have attracted the attention of the world stock market and investors from all over the world attach great importance to them. .In order to maintain this feature, Dow Jones often adjusts the stocks selected by its stock price average index, and replaces the stocks of companies that lose representativeness with dynamic and more representative company stocks.Since 1928, the 30 stocks of industrial and commercial companies that are only used to calculate the Dow Jones Industrial Average have been replaced 30 times. Almost every two years, a new company's stock will replace the old company's stock.

The second is the news carrier that announces the Dow Jones stock price average index - "The Wall Street Journal" is the most influential newspaper in the world's financial circles.The newspaper reports in detail the average index of the sampled stocks calculated every hour, the percentage change rate, the turnover of each sampled stock, etc., and pays attention to correcting the average index of the stock price after the stock split.The Dow Jones stock price average is published every half hour during New York Stock Exchange business hours.

The third is that this stock price average index has never stopped since it was compiled. It can be used to compare stock prices and economic development in different periods. It has become one of the most sensitive stock price average indexes that reflect changes in the U.S. stock market. The main reference for investing in stocks.

The Big Mac Index: Purchasing Power Parity Theory

In September 1986, the famous British magazine "The Economist" launched an interesting "Big Mac Index".The Big Mac Index (bigmacindex) is an informal economic index used to measure the theoretical rationality of the exchange rate between two currencies.Assuming that a Big Mac costs $9 in the US and £4 in the UK, economists believe that the purchasing power parity exchange rate between the dollar and the pound is £3 = $3.And if the price of a McDonald's Big Mac in the United States is 4 dollars, in the United Kingdom it is 2.54 pounds, in the euro zone it is 1.99 euros, and in China it is only 2.54 yuan, then economists infer from this that the renminbi is the most undervalued currency in the world. most currencies.Because according to the law of one price, the same commodity should have the same price all over the world.If the Big Mac index is greater than 9.9, it means that the price of McDonald's in this country is lower than that of the United States; otherwise, it is higher than that of the United States.From the perspective of the exchange rate, it means that the exchange rate of the country's currency is undervalued, or the exchange rate of the US dollar is overvalued.

The price of the same product in currencies around the world varies greatly, and is completely inconsistent with the official exchange rate conversion. Therefore, in the eyes of some Western economists, McDonald's Big Mac has become an index for evaluating the true value of a currency.

The Big Mac Index has derived the term "burgernomics" (hamburger economy) in English-speaking countries. Every year after 1986, "The Economist" publishes a new "Big Mac Index", which has become popular all over the world.The Big Mac Index is an informal economic index used to measure the theoretical rationality of the exchange rate between two currencies.This measurement method assumes that the theory of purchasing power parity holds.

After the First World War, the world economy was in turmoil, and various countries did not cash their banknotes. Prices rose and inflation accelerated.In response to this situation, Kassel proposed to establish new official exchange rates of various countries on the basis of purchasing power parity, so as to eliminate trade difficulties caused by price changes and restore normal international trade relations. This is the exchange rate between domestic and foreign currencies. Equal to the ratio between the domestic and foreign price levels.

For example, if a representative group of goods is worth $2 in the United States and 10 francs in France, the exchange rate should be $1 to 5 francs.Therefore, the theory of purchasing power parity holds that a balanced exchange rate is the exchange rate that makes the two currencies being compared equal in their respective domestic purchasing power, and it is impossible for a long-term existence to deviate from the exchange rate that makes the domestic purchasing power equal.If a good in the United States is worth one-fifth the price in dollars of a franc in France, and the exchange rate is that one dollar equals one franc, then everyone who holds francs will exchange francs for the same amount. US dollars, and can buy 1 times the goods in the United States.But the demand for dollars in the market will cause the exchange rate to rise until the dollar is equal to 5 francs, that is, until the ratio of the purchasing power of its currency is equal to the price level expressed by the currencies of various countries.

Purchasing power parity theory holds that people demand foreign currency because they can use it to buy foreign goods and services, and foreigners need domestic currency because they can use it to buy domestic goods and services.Therefore, the exchange of domestic currency for foreign currency is equivalent to the exchange of domestic and foreign purchasing power.Therefore, the price of foreign currency expressed in domestic currency, that is, the exchange rate, is determined by the ratio of the purchasing power of the two currencies.Since purchasing power is actually the reciprocal of the general price level, the currency exchange rate between two countries can be expressed by the ratio of the two countries' price levels.This is the theory of purchasing power parity.From the point of view of expression, purchasing power parity theory has two advantages, that is, absolute purchasing power parity and relative purchasing power parity.

Purchasing power parity determines the long-term trend of exchange rates.Regardless of the various short-term factors that affect exchange rate fluctuations in the short term, in the long run, the trend of the exchange rate is basically consistent with the trend of purchasing power parity.Therefore, purchasing power parity provides a better method for forecasting long-term exchange rate trends.

The major premise of purchasing power parity is that the exchange rates of two currencies will naturally adjust to a level, so that the "basket" of goods will be sold at the same price in the two currencies (the law of one price).In the Big Mac Index, the "basket" of goods is a Big Mac hamburger sold in McDonald's fast food restaurants.The reason for choosing the Big Mac is that the Big Mac is available in many countries, and its production specifications are the same everywhere, and the local McDonald's distributors are responsible for negotiating prices for the materials.These factors allow the index to meaningfully compare national currencies.

The PPP exchange rate for Big Macs between the two countries is calculated by dividing the local currency price of a Big Mac in one country by the local currency price of a Big Mac in the other country.The quotient is used to compare with the actual exchange rate; if the quotient is lower than the exchange rate, it means that the exchange rate of the currency of the first country is undervalued (according to the theory of purchasing power parity); on the contrary, if the quotient is higher than the exchange rate, the first The exchange rate of the national currency is overvalued.

Economists dispute the scientificity of using a McDonald's Big Mac to measure the purchasing power of each country's currency.Because this measurement method assumes that the purchasing power parity theory holds true.However, there is still no unified conclusion on whether the theory of purchasing power evaluation is established.

Lipstick indicator: the most intuitive economic indicator

Economists have found that some things in life that people turn a blind eye to can also wonderfully reflect or predict the state or trend of the economy, so they can be made into very unique economic indicators. They can be lipstick, garbage and skirts.

Economics is inseparable from survey numbers. GDP, CPI, and inflation rate are all very important economic indicators.However, no matter how accurate these figures are, they always make us feel a little alienated, not to mention that there are many figures in the news that we can't trust!Sometimes, although the economic indicators from life may not be so accurate, the feelings it brings us are more specific and vivid.

For example, economists have used six life-like indicators to prove the economic recovery in the UK: a surge in new car sales; a surge in demand for drivers; Simultaneous increase; women undergoing breast augmentation surgery and women's bust size increase at the same time.

Economists have found that when the economy is booming, people "throw away the old and replace it with the new" in large numbers, so they throw away more things: furniture, clothes, large obsolete goods (such as old furniture, old appliances, etc.).When the economy is in recession, people throw less garbage, and they throw away small objects.Therefore, they propose to use junk indicators to measure the economy.

Some economists have found a curious relationship between the lipsticks women use and the state of the economy—when the economy is booming, lipstick sales are down; when the economy is in recession, lipstick sales are up.The reason: When the economy is booming, women's employment rate is high, the pace of work is also accelerated, and the income level is increased, so the reduction of leisure time and the improvement of self-confidence make them use less lipstick.Therefore, a small lipstick can also be made into an economic indicator.

In addition, some fashion items for women are also regarded as economic indicators.For example, the length of a skirt was once seen as an indicator of the state of the stock market and the economy.This is because stockings are expensive and a fashion item for women.When the economy is booming and the stock market is in a bull market, if men have the money and the mood to buy stockings for women, women are willing to wear short skirts to show off their beautiful legs; otherwise, women will wear long skirts.This is the once noisy "skirt theory".

Greenspan was the chairman of the Federal Reserve, and he once proposed the GDP weight indicator.Instead of using percentage points of GDP growth to account for the growth of the U.S. economy in the 20s, he said GDP was lightened.The reason is that in the past GDP of the United States, the industries that accounted for the largest proportion were concentrated in coal, steel, petroleum, cement and other products that were heavy and bulky.With the development of the economy, the items produced by industries such as computer chips, the Internet, and the service industry have become lighter and lighter, and the technological content in them has become higher and higher, which shows the huge changes in the US industrial structure.

The subprime mortgage crisis, the "big earthquake" in the financial world

For anyone who cares about the economic field, the term subprime mortgage crisis is all too familiar.Because since 2007, this term has frequently appeared in various media.The subprime mortgage crisis has plunged the powerful U.S. economy into a predicament of slowing growth, and even faced an economic crisis.In today's era of economic globalization, the changing face of the US economy has affected the overall situation, and the economies of many countries around the world have also fallen into crisis.In China, the subprime mortgage crisis has also had a great impact, such as economic downturn, inflation, and stock market crashes, all of which are related to the subprime mortgage crisis.So, what is the subprime mortgage crisis?
The full name of the subprime mortgage crisis is the subprime lending crisis, which refers to a crisis in the United States where investment funds are forced to close due to the bankruptcy of subprime mortgage lenders and the stock market fluctuates abnormally violently.The subprime mortgage crisis has caused insufficient liquidity in the global financial market, and major financial markets including the United States, the European Union, and Japan have been affected by it.

In the United States, there are three levels of mortgage loans: the first level is the high-quality loan market, which mainly provides traditional 660-15-year fixed-rate mortgage loans for high-quality customers with credit scores above 30.The third level is the subprime loan market, which is aimed at people with credit scores below 620, no income proof and heavy debts, mainly providing short-term loans for 3 to 7 years.As for the second level, it is the "alternative A-grade" mortgage loan market, which mainly provides loans between the first two.

(End of this chapter)