Measuring GDP and Prices

Measuring GDP, Prices and Unemployment


The meaning and measurement of some of the most important
macroeconomic statistics:

 Gross domestic product (GDP) & Gross National Product (GNP)

 The consumer price index (CPI) & the Retail Price Index (RPI)

 The unemployment rate.



Gross Domestic Product: Expenditure and Income



 Total expenditure on domestically-produced
final goods and services.

 Total income earned by domestically-located
factors of production.



Value added:
The value of output minus the value of the intermediate goods used to
produce that output.



Value of output- value of intermediate good= Value Added



Final goods, value added, and GDP


 GDP = value of final goods produced

= sum of value added at all stages of production.

 The value of the final goods already includes the value of the intermediate
goods,
so including intermediate and final goods in GDP would be double
counting.

, The expenditure components of GDP
 consumption, C

 investment, I

 government spending, G

 net exports, NX

An important identity:

Y = C + I + G + NX

Y = value of total output

C+I+G+NX = Aggregate expenditure



Consumption (C)


Definition: The value of all goods and services bought by households.

Includes:

 durable goods
last a long time
e.g., cars, home appliances

 nondurable goods
last a short time
e.g., food, clothing

 services
intangible items purchased by consumers
e.g., dry cleaning,
air travel

Investment (I)
 Spending on capital, a physical asset used in future production

 Includes:

 Business fixed investment
Spending on plant and equipment

 Residential fixed investment
Spending by consumers and landlords on housing units