Chapter 2

Measurement

Copyright 2008 Pearson Addison-Wesley. All rights reserved.

Chapter 2 Topics

Measuring GDP
Nominal and real GDP and price indices
Savings, wealth and capital
Labor market measurement

Copyright 2008 Pearson Addison-

2-2

Measuring GDP: The National

Income and Product Accounts
GDP Measured Using: (i) the product approach;
(ii) the expenditure approach; (iii) the income
approach.

Copyright 2008 Pearson Addison-

2-3

National Income Accounting

Example
Fictional Island Economy
Coconut Producer, Restaurant, Consumers,
Government

Copyright 2008 Pearson Addison-

2-4

Table 2.1 Coconut Producer

Copyright 2008 Pearson Addison-

2-5

Table 2.2 Restaurant

Copyright 2008 Pearson Addison-

2-6

Table 2.3 After-Tax Profits

Copyright 2008 Pearson Addison-

2-7

Table 2.4 Government

Copyright 2008 Pearson Addison-

2-8

Table 2.5 Consumers

Copyright 2008 Pearson Addison-

2-9

Table 2.6 GDP Using the

Product Approach

Copyright 2008 Pearson Addison-

2-10

Table 2.7 GDP Using the

Expenditure Approach

Copyright 2008 Pearson Addison-

2-11

Table 2.8 GDP Using the

Income Approach

Copyright 2008 Pearson Addison-

2-12

Table 2.9 Gross Domestic

Product for 2005

Copyright 2008 Pearson Addison-

2-13

Nominal and Real GDP and

Price Indices
Price Index: Weighted average of a set of
observed prices that gives a measure of the price
level.
Price indices allow us to measure the inflation
rate the rate of change in the price level.
A measure of the inflation rate allows us to
determine how much of an increase in GDP is
nominal and how much is real.
Copyright 2008 Pearson Addison-

2-14

Table 2.10 Data for Real GDP

Example

Copyright 2008 Pearson Addison-

2-15

Figure 2.1 Nominal GDP (black line) and

Chain-Weighted Real GDP (colored line) for
the Period 19472006

Copyright 2008 Pearson Addison-

2-16

Table 2.11 Implicit GDP Price

Deflators, Example

Copyright 2008 Pearson Addison-

2-17

Figure 2.2 Inflation Rate Calculated from

the CPI (blue line), and Calculated from the
Implicit GDP Price Deflator (black line)

Copyright 2008 Pearson Addison-

2-18

Figure 2.3 The Price Level as Measured by

the CPI and Implicit GDP Price Deflator,
19472006

Copyright 2008 Pearson Addison-

2-19