Comments on: Mixing Red Delicious and Granny Smith Apples http://alephblog.com/2008/08/01/mixing-red-delicious-and-granny-smith-apples/ Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control Sun, 12 Feb 2012 22:02:53 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: sysin3http://alephblog.com/2008/08/01/mixing-red-delicious-and-granny-smith-apples/comment-page-1/#comment-18161 sysin3 Sat, 02 Aug 2008 00:52:37 +0000 http://alephblog.com/?p=790#comment-18161 Remember the "misery index" ... Reagan ? I think we're (getting) there again. Remember the “misery index” … Reagan ?

I think we’re (getting) there again.

]]> By: Cedric Yauhttp://alephblog.com/2008/08/01/mixing-red-delicious-and-granny-smith-apples/comment-page-1/#comment-18160 Cedric Yau Fri, 01 Aug 2008 22:41:02 +0000 http://alephblog.com/?p=790#comment-18160 Doing some thinking by hand-waving, you could say that aggregate GDP includes Investment and Consumptions. 1) Right now, demand for investment (e.g. new equipment) has dropped as businesses are not expanding as rapidly, if at all. 2) This would lead to deflationary pressure on investment leading. 3) Thus, aggregate GDP growth might overstate the expected value for investment and understate the expected value for consumption as you have observed. A few things can be postulated: A) If businesses were actively trying to decrease inventory, lower prices may have been accepted, leading to deflationary pressures. B) This implies that once inventory bottoms, the deflationary pressure will cease, leading to higher reported estimates of inflation. C) This creates a smoothing effect on GDP. At the beginning of a slowdown, GDP Inflation will be Understated and GDP Growth will be overstated, and at the end of a slowdown, GDP Inflation will be overstated and GDP Growth will be understated. -Cedric Doing some thinking by hand-waving, you could say that aggregate GDP includes Investment and Consumptions.

1) Right now, demand for investment (e.g. new equipment) has dropped as businesses are not expanding as rapidly, if at all.

2) This would lead to deflationary pressure on investment leading.

3) Thus, aggregate GDP growth might overstate the expected value for investment and understate the expected value for consumption as you have observed.

A few things can be postulated:

A) If businesses were actively trying to decrease inventory, lower prices may have been accepted, leading to deflationary pressures.

B) This implies that once inventory bottoms, the deflationary pressure will cease, leading to higher reported estimates of inflation.

C) This creates a smoothing effect on GDP. At the beginning of a slowdown, GDP Inflation will be Understated and GDP Growth will be overstated, and at the end of a slowdown, GDP Inflation will be overstated and GDP Growth will be understated.

-Cedric

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