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Chapter 2
Measurement
Teaching Goals
Students must understand the importance of measuring aggregate economic activity. Macroeconomists
produce theories that provide useful insights and policy conclusions. To be credible, such theories must
produce hypotheses that evidence could possibly refute. Macroeconomic measurement provides such
evidence. Without macroeconomic measurements, macroeconomics could not be a social science, and
would rather consist of philosophizing and pontificating. Market transactions provide the most simple and
direct measurements. Macroeconomists’ most basic measurement is Gross Domestic Product (GDP), the
value of final, domestically marketed output produced during a given period of time.
In the United States, the Commerce Department’s National Income and Product Accounts provide official
estimates of GDP. These accounts employ their own set of accounting rules to ensure internal consistency
and to provide several separate estimates of GDP. These separate estimates are provided by the product
accounts, the expenditure accounts, and the income accounts. The various accounting conventions may,
at first glance, be rather dry and complicated. However, students can only easily digest the material in later
chapters if they have a good grounding in the fundamentals.
GDP changes through time because different amounts of goods and services are produced, and such goods
and services are sold at different prices. Standards of living are determined by the amounts of goods and
services produced, not by the prices they command in the market. While GDP is relatively easy to
measure, the decomposition of changes in real GDP into quantity and price components is much more
difficult. It is easy to separately measure the number of apples sold and the price of each apple. Because
macroeconomics deals with aggregate output, the differentiation of price and quantity is much less easily
apparent. It is important to emphasize that while there may be more or less reasonable approaches to this
problem, there is no unambiguous best approach. Since many important policy discussions involve debates
about output and price measurements, it is very important to understand exactly how such measurements
are produced.
If many of your students are familiar with accounting principles, it may also be useful to present the
National Income and Product Account with the “T” accounts, and to highlighting how all income is an
expense elsewhere. Make one account for each of the firms, one for the household, and one for the
government. Add another account for the rest of the world when discussing the example with international
trade. This procedure can highlight how some entities can be inferred from others because accounting
identities must hold. It makes it also easier to determine consumption for some student Social Security
benefits are indexed to the Consumer Price Index. Explain with an example exactly how these adjustments
are made. Ask the students if they think that this procedure is “fair.” Another topic of concern is the
stagnation in the growth of measured real wages. Real wages are measured by dividing (for example)
average hourly wages paid in manufacturing by the consumer price index. Ask students if measured
changes in real wages confirm or conflict with their general beliefs about whether the typical worker is
better or worse off today than 10 or 20 years ago. How does possible mis-measurement of prices reconcile
any apparent differences between casual impressions and statistical evidence?
The text discusses why unemployment may or may not be a good measure of labor market tightness.
Another interpretation of the unemployment rate is as a measure of economic welfare – welfare goes down
as unemployment goes up. Ask the students if they agree with this interpretation. Does the unemployment
rate help factor in considerations like equal distribution of income? How can the unemployment rate factor
in considerations like higher income per employed worker? Discuss possible pros and cons of using
unemployment rather than per capita real GDP as a measure of well-being. Can unemployment be too
low? Why or why not?
Outline
I. Measuring GDP: The National Income and Product Accounts
A. What Is GDP and How Do We Measure It?
B. The Product Approach
C. The Expenditure Approach
D. The Income Approach
E. Gross National Product (GNP)
F. What Does GDP Leave Out?
G. Expenditure Components
1. Consumption
2. Investment
3. Net Exports
4. Government Expenditures
II. Nominal and Real GDP and Price Indices
A. Real GDP
B. Measures of the Price Level
1. Implicit GDP Price Deflator
2. Consumer Price Index (CPI)
C. Problems Measuring Real GDP and the Price Level
3. CA ⇒ Claims on Foreigners
IV. Labor Market Measurement
A. BLS Categories
1. Employed
2. Unemployed
3. Not in the Labor Force
B. The Unemployment Rate
Number unemployed
Unemployment Rate =
Labor force
C. The Participation Rate
Labor force
Participation Rate =
Total working age population
D. The Employment/Population Ratio
Total employment
Employment/Population Ratio =
Total working age population
E. Unemployment and Labor Market Tightness
Learning Objectives
1. Construct measures of gross domestic product using the product approach, the expenditure
approach, and the income approach.
2. State the importance of each expenditure component of GDP, and the issues associated with
measuring each.
3. Construct real and nominal GDP, and price indices, from data on quantities and prices in different
years.
4. State the key difficulties in measuring GDP and the price level.
Title: A call
The tale of two passions
Language: English
LONDON
CHATTO & WINDUS
1910
CONTENTS
PART I
PART II
PART III
PART IV
PART V
EPISTOLARY EPILOGUE
PART I
A CALL
II
THAT was not, however, to be the final colloquy between Robert
Grimshaw and Ellida Langham, for he was again upon her doorstep
just before her time to pour out tea.
“What is the matter?” she asked; “you know you aren’t looking
well, Toto.”
Robert Grimshaw was a man of thirty-five, who, by reason that
he allowed himself the single eccentricity of a very black, short
beard, might have passed for fifty. His black hair grew so far back
upon his brow that he had an air of incipient baldness; his nose was
very aquiline and very sharply modelled at the tip, and when, at a
Christmas party, to amuse his little niece, he had put on a red
stocking-cap, many of the children had been frightened of him, so
much did he resemble a Levantine pirate. His manners, however,
were singularly unnoticeable; he spoke in habitually low tones; no
one exactly knew the extent of his resources, but he was reputed
rather “close,” because he severely limited his expenditure. He
commanded a cook, a parlourmaid, a knife-boy, and a man called
Jervis, who was the husband of his cook, and he kept them upon
board wages. His habits were of an extreme regularity, and he had
never been known to raise his voice. He was rather an adept with
the fencing-sword, and save for his engagement to Katya Lascarides
and its rupture he had had no appreciable history. And, indeed,
Katya Lascarides was by now so nearly forgotten in Mayfair that he
was beginning to pass for a confirmed bachelor. His conduct with
regard to Pauline Lucas, whom everybody had expected him to
marry, was taken by most of his friends to indicate that he had
achieved that habit of mind that causes a man to shrink from the
disturbance that a woman would cause to his course of life. Himself
the son of an English banker and of a lady called Lascarides, he had
lost both his parents before he was three years old, and he had been
brought up by his uncle and aunt, the Peter Lascarides, and in the
daily society of his cousins, Katya and Ellida. Comparatively late—
perhaps because as Ellida said, he had always regarded his cousins
as his sisters—he had become engaged to his cousin Katya, very
much to the satisfaction of his uncle and his aunt. But Mrs.
Lascarides having died shortly before the marriage was to have
taken place, it was put off, and the death of Mr. Lascarides, occurring
four months later, and with extreme suddenness, the match was
broken off, for no reason that anyone knew altogether. Mr.
Lascarides had, it was known, died intestate, and apparently,
according to Greek law, Robert Grimshaw had become his uncle’s
sole heir. But he was understood to have acted exceedingly
handsomely by his cousins. Indeed, it was a fact Mr. Hartley Jenx
had definitely ascertained, that upon the marriage of Ellida to Paul
Langham, Robert Grimshaw had executed in her benefit settlements
of a sum that must have amounted to very nearly half his uncle’s
great fortune. Her sister Katya, who had been attached to her mother
with a devotion that her English friends considered to be positively
hysterical, had, it was pretty clearly understood, become exceedingly
strange in her manner after her mother’s death. The reason for her
rupture with Robert Grimshaw was not very clearly understood, but it
was generally thought to be due to religious differences. Mrs.
Lascarides had been exceedingly attached to the Greek Orthodox
Church, whereas, upon going to Winchester, Robert Grimshaw, for
the sake of convenience and with the consent of his uncle, had been
received into the Church of England. But whatever the causes of the
rupture, there was no doubt that it was an occasion of great
bitterness. Katya Lascarides certainly suffered from a species of
nervous breakdown, and passed some months in a hydropathic
establishment on the Continent; and it was afterwards known by
those who took the trouble to be at all accurate in their gossip that
she had passed over to Philadelphia in order to study the more
obscure forms of nervous diseases. In this study she was
understood to have gained a very great proficiency, for Mrs. Clement
P. Van Husum, junior, whose balloon-parties were such a feature of
at least one London season, and who herself had been one of Miss
Lascarides’ patients, was accustomed to say with all the enthusiastic
emphasis of her country and race—she had been before marriage a
Miss Carteighe of Hoboken, N.Y.—that not only had Katya
Lascarides saved her life and reason, but that the chief of the
Philadelphian Institute was accustomed always to send Katya to
diagnose obscure cases in the more remote parts of the American
continent. It was, as the few friends that Katya had remaining in
London said, a little out of the picture—at any rate, of the picture of
the slim, dark and passionate girl with the extreme, pale beauty and
the dark eyes that they remembered her to have had.
But there was no knowing what religion might not have done for
this southern nature if, indeed, religion was the motive of the rupture
with Robert Grimshaw; and she was known to have refused to
receive from her cousin any of her father’s money, so that that, too,
had some of the aspect of her having become a nun, or, at any rate,
of her having adopted a cloisteral frame of mind, devoting herself, as
her sister Ellida said, “to good works.” But whatever the cause of the
quarrel, there had been no doubt that Robert Grimshaw had felt the
blow very severely—as severely as it was possible for such things to
be felt in the restrained atmosphere of the more southerly and
western portions of London. He had disappeared, indeed, for a time,
though it was understood that he had been spending several months
in Athens arranging his uncle’s affairs and attending to those of the
firm of Peter Lascarides and Company, of which firm he had become
a director. And even when he returned to London it was to be
observed that he was still very “hipped.” What was at all times most
noticeable about him, to those who observed these things, was the
pallor of his complexion. When he was in health, this extreme and
delicate whiteness had a subcutaneous flush like the intangible
colouring of a China rose. But upon his return from Athens it had,
and it retained for some time, the peculiar and chalky opacity. Shortly
after his return he engrossed himself in the affairs of his friend
Dudley Leicester, who had lately come into very large but very
involved estates. Dudley Leicester, who, whatever he had, had no
head for business, had been Robert Grimshaw’s fag at school, and
had been his almost daily companion at Oxford and ever since. But
little by little the normal flush had returned to Robert Grimshaw’s
face; only whilst lounging through life he appeared to become more
occupied in his mind, more reserved, more benevolent and more
gentle.
III
IV