Macroeconomics - Barro Chapter 2

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C h a p t e r 2National-Income Accounting:

Gross Domestic Product and the Price Level

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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

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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

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Calculations

• (nominal GDP)/(implicit price level) = real GDP

or

• implicit price level = (nominal GDP)/(real GDP)

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GDP as a Welfare Measure

GDP does not:

• Consider change in income distribution

• Include non-market goods.

• Assign value to leisure.

• Consider environmental damage.

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GDP by Expenditure

• Personal Consumption Expenditures

• Gross Private Domestic Investment

• Government purchases of Goods and Services

• Exports and Imports

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Measuring GDP by Income

• National Income – Income earned by factors of production.

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Relationship between GDP and National Income

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National Income by Sector

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Prices

• Consumer Price Index (CPI)

• Producer Price Index (PPI)