1) The document discusses key macroeconomic indicators including Gross Domestic Product (GDP), the Consumer Price Index (CPI), and the unemployment rate. 2) GDP is the total value of final goods and services produced domestically in a year, and can be measured by total expenditures or total income. 3) The CPI is published by the Bureau of Labor Statistics and used to measure inflation and changes in the cost of living over time based on prices of goods in a typical consumer's basket.

1. CHAPTER 10
Measuring Macroeconomic Activity

2. INTRODUCTION

3. Learning Objectives
What will you learn from this module?
 Gross Domestic Product (GDP)
 the Consumer Price Index (CPI)
 the Unemployment Rate
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4. CHAPTER 10
Measuring Macroeconomic Activity

5. GROSS DOMESTIC
PRODUCT

6. Gross Domestic Product
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• Two definitions:
• Total expenditure on domestically-produced
final goods and services.
• Total income earned by domestically-located
factors of production.
• For more information on “Gross Domestic Product”
• https://www.youtube.com/watch?v=mjJmo5mN5yA

7. Why expenditure = income
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 In every transaction, the buyer’s expenditure becomes
the seller’s income.
 Thus, the sum of all expenditure equals the sum of all
income.
 Definition of Value Added:
 A firm’s value added is the value of its output minus the value of the
intermediate goods the firm used to produce that output.

8. Final goods, value added, and GDP
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• 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 goods
in GDP would be double-counting.

9. The expenditure components ofGDP
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1. Consumption
2. Investment
3. Government spending
4. Net exports

10. 1. Consumption
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• the value of all goods and services bought by households
which Includes:
• durable goods last a long time ex: cars, home
appliances
• non-durable goods last a short time ex: food, clothing
• Services work done for consumers ex: dry cleaning, air
travel

11. 2. Investment (I)
1: spending on [the factor of production] capital
2. spending on goods bought for future use
• Example (assumes no depreciation):
• 1/1/2003:
economy has $500b worth of capital
• during 2003:
investment = $37b
• 1/1/2004:
economy will have $537b worth of capital
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12. 3. Government spending(G)
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• G includes all government spending on goods and
services.
• G excludes transfer payments (e.g, unemployment
insurance payments), because they do not represent
spending on goods and services.
• What is Net exports (NX = EX - IM)
• value of exports (EX) minus imports (IM)

13. 4. Net Export
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• What is Net exports (NX = EX - IM)
• value of exports (EX) minus imports (IM)

14. An important identity
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Y = C + I + G + NX
where
Y = GDP = the value of total output
C + I + G + NX = aggregate expenditure

15. GDP: An important concept
• We have now seen that GDP measures
• total income
• total output
• total expenditure
• the sum of value-added at all stages
in the production of final goods.
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16. GNP vsGDP
• Gross National Product (GNP):
total income earned by the nation’s factors of production,
regardless of where located
• Gross Domestic Product (GDP):
total income earned by domestically-located factors of
production, regardless of nationality
(GNP – GDP) = (factor payments from abroad)
– (factor payments to abroad)
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17. Real vs NominalGDP
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• GDP is the value of all final goods and services produced.
• Nominal GDP measures these values using current
prices.
• Real GDP measure these values using the prices of a
base year.
• For more information on “Real vs Nominal GDP”
• https://www.youtube.com/watch?v=rGqhTQyY6g4

18. Real GDP controls forinflation
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• Changes in nominal GDP can be due to:
• changes in prices
• changes in quantities of output produced
• Changes in real GDP can only be due to changes in
quantities,
• because real GDP is constructed using
constant base-year prices.

19. CHAPTER 10
Measuring Macroeconomic Activity

20. CONSUMER PRICE INDEX

21. Consumer Price Index(CPI)
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• A measure of the overall level of prices
• Published by the Bureau of Labor Statistics (BLS)
• Used to track changes in the
typical household’s cost of living
• adjust many contracts for inflation
• allow comparisons of dollar figures from different years
• For more information on “Measuring Inflation”
• https://www.youtube.com/watch?v=0jJKjgE3qfE

22. How the BLS constructs theCPI
1. Surveys consumers to determine composition
of the typical consumer’s “basket” of goods.
2. Every month, collects data on prices of all
items in the basket; compute cost of basket
3. CPI in any month equals
100 
Cost of basket in that month
Cost of basket in base period
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23. CHAPTER 10
Measuring Macroeconomic Activity

24. 2-24
RECAP
On Key Terms and Concepts

25. Main terms andconcepts
• GDP
• GDP Deflator
• CPI
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