1. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 2 Measurement

2. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-2 Chapter 2 Topics Measuring GDP Nominal and real GDP and price indices Savings, wealth and capital Labor market measurement

3. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-3 Measuring GDP: The National Income and Product Accounts GDP Measured Using: (i) the product approach; (ii) the expenditure approach; (iii) the income approach.

4. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-4 National Income Accounting Example Fictional Island Economy Coconut Producer, Restaurant, Consumers, Government

5. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-5 Table 2.1 Coconut Producer

6. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-6 Table 2.2 Restaurant

7. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-7 Table 2.3 After-Tax Profits

8. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-8 Table 2.4 Government

9. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-9 Table 2.5 Consumers

10. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-10 Table 2.6 GDP Using the Product Approach

11. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-11 Table 2.7 GDP Using the Expenditure Approach

12. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-12 Table 2.8 GDP Using the Income Approach

13. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-13 Table 2.9 Gross Domestic Product for 2005

14. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-14 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.

15. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-15 Table 2.10 Data for Real GDP Example

16. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-16 Figure 2.1 Nominal GDP (black line) and Chain-Weighted Real GDP (colored line) for the Period 1947–2006

17. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-17 Table 2.11 Implicit GDP Price Deflators, Example

18. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-18 Figure 2.2 Inflation Rate Calculated from the CPI (blue line), and Calculated from the Implicit GDP Price Deflator (black line)

19. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 2-19 Figure 2.3 The Price Level as Measured by the CPI and Implicit GDP Price Deflator, 1947–2006