Chapter 2 NationalIncome Accounting Gross Domestic Product and

Chapter 2 National-Income Accounting: Gross Domestic Product and the Price Level Macroeconomics - Barro Chapter 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 2

Macroeconomics - Barro Chapter 2

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 4

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

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 6

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

Macroeconomics - Barro Chapter 2

Measuring GDP by Income • National Income – Income earned by factors of production. Macroeconomics - Barro Chapter 2 9

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

National Income by Sector Macroeconomics - Barro Chapter 2 11

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