Macroeconomics - Barro Chapter 2 1 C h a p t e r 2 National-Income Accounting: Gross Domestic Product and the Price Level

Macroeconomics - Barro Chapter 2 2 Nominal GDP Nominal GDP measures the dollar (or euro, etc.) value of all the goods and services that an economy produces during a specified period, such as a year. –Flow variable - it measures the dollar amount of goods produced per unit of time, such as a year. –GDP in current dollars

Macroeconomics - Barro Chapter 2 3

4 Real GDP Calculating Real GDP –Multiply each year’s quantity of output of each good by the price of the good in a base year. –GDP in constant dollars –Chain-weighted real GDP

Macroeconomics - Barro Chapter 2 5 Calculations (nominal GDP)/(implicit price level) = real GDP or implicit price level = (nominal GDP)/(real GDP)

Macroeconomics - Barro Chapter 2 6 GDP as a Welfare Measure GDP does not: Consider change in income distribution Include non-market goods. Assign value to leisure. Consider environmental damage.

Macroeconomics - Barro Chapter 2 7 GDP by Expenditure Personal Consumption Expenditures Gross Private Domestic Investment Government purchases of Goods and Services Exports and Imports

Macroeconomics - Barro Chapter 2 8

9 Measuring GDP by Income National Income – Income earned by factors of production.

Macroeconomics - Barro Chapter 2 10 Relationship between GDP and National Income

Macroeconomics - Barro Chapter 2 11 National Income by Sector

Macroeconomics - Barro Chapter 2 12 Prices Consumer Price Index (CPI) Producer Price Index (PPI)