1. Appendix to Chapter 1 Defining Aggregate Output, Income, the Price Level, and the Inflation Rate

2. Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 1A-2 Aggregate Output and Aggregate Income Aggregate Output  Gross Domestic Product (GDP) = market value of all final goods and services produced in the domestic economy during a particular year Aggregate Income  Total income of the factors of production (land, capital, labor) during a particular year Distinction Between Nominal and Real  Nominal = values measured using current prices  Real = quantities measured with constant prices

3. Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 1A-3 Aggregate Price Level Consumer Price Index (CPI) = price of “basket” of goods and services in current year / price of the same basket of goods in the base year (usually expressed as a percentage)

4. Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 1A-4 Growth Rates and the Inflation Rate