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Topic: McConnell & Brue - Chapter #7
Measuring Domestic Output, National Income, & the Price Level
Major Macroeconomic Goals
4-8 Others – Review these as presented in Chapter #1
II. Use Macroeconomic Policy to Manage the:
Level of unemployment
Level of production
Level of income
Level of inflation
III. Why Study Macroeconomics?
To understand the relationships among major macroeconomic variables so that we can develop
policies and programs that will provide for the maximum possible human welfare.
IV. Gross Domestic Product (GDP)
A measure of the market value of all goods and services produced in a country during a given
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V. Concerning GNP
A measure of final goods value
Must specify time period
Measure in dollars
Is a monetary measure
(1) financial transactions
(2) Second hand sales
(3) Excludes double counting
VI. Two Ways of Measuring GDP
Amount spent on this year's total output. Also called the Receipts or
Money income from production of current year's output. Also referred to as the
income or allocation approach.
VII. Note the U.S. Income Statement for 2000
15th Edition, page 121, Table 7-3 (2000)
14th Edition, page 131, Table 7-3 (1997)
Note the relationship between GDP, NDP, NI, PI & DI
15th Edition, page 125, Table 7-4 (2000)
14th Edition, page 136, Table 7-4 (1997)
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VIII. Problems with GDP as a Measure of Economic Well-Being
Problems with GDP as a measure of economic well-being or for comparison between
years or among different countries.
GDP is a Monetary Measure
Current dollars (nominal GDP)
Constant dollars (real GDP)
Need to adjust GDP for changes in the value of the dollar to make
meaningful comparisons between or among different time periods.
Need to construct a price index.
Non-Market Transactions are not included in GDP.
Economic "Bads" are not subtracted from G