This chapter discusses how economic activity is measured at the national level. It introduces the basic framework of national income accounting and the three approaches to measuring GDP: the product, income, and expenditure approaches. It provides an example to illustrate how the three approaches should yield the same result. The chapter also distinguishes between nominal and real GDP and explains how price indexes like the GDP deflator and CPI are used to measure inflation.

1. Chapter 2 The Measurement and Structure of the National Economy

3. How to measure economic activity ? Producers Consumers $ Output Produced Incomes received Expenditures

6. An Example OrangeInc JuiceInc Consumers $ orange orange $ juice

17. Nominal GDP of the U.S., 1930-2006

23. Table 2.1 Expenditure Approach to Measuring GDP in the United States, 2005

26. GDP: Expenditure Approach Domestic Producers Foreign Producers Domestic Households Foreign Households (1) (2) (3) (4) Import = (2) Export = (3) Consumption (C) = (1) + (2) Net Export (NX) = (3) – (2) C + NX = (1) + (3)

43. Real and Nominal GDP in the U.S., 1930-2006 . Real GDP Nominal GDP