Chapter 2
Measurement
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Chapter 2 Topics
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Measuring GDP
Nominal and real GDP and price indices
Savings, wealth and capital
Labor market measurement
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Measuring GDP: The National
Income and Product Accounts
• GDP Measured Using: (i) the product approach;
(ii) the expenditure approach; (iii) the income
approach.
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National Income Accounting
Example
• Fictional Island Economy
• Coconut Producer, Restaurant, Consumers,
Government
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Table 2.1 Coconut Producer
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Table 2.2 Restaurant
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Table 2.3 After-Tax Profits
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Table 2.4 Government
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Table 2.5 Consumers
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Table 2.6 GDP Using the
Product Approach
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Table 2.7 GDP Using the
Expenditure Approach
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Table 2.8 GDP Using the
Income Approach
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Table 2.9 Gross Domestic
Product for 2005
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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.
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Table 2.10 Data for Real GDP
Example
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Figure 2.1 Nominal GDP (black line) and
Chain-Weighted Real GDP (colored line) for
the Period 1947–2006
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Table 2.11 Implicit GDP Price
Deflators, Example
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Figure 2.2 Inflation Rate Calculated from
the CPI (blue line), and Calculated from the
Implicit GDP Price Deflator (black line)
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Figure 2.3 The Price Level as Measured by
the CPI and Implicit GDP Price Deflator,
1947–2006
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