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Chapter2PreviewMeasuringEconomicActivity:NationalIncomeAccountingNationalincomeaccountingisanaccountingsystemthatmeasureseconomicactivityanditscomponentsFundamentalidentityofnationalincomeaccounting:MeasuringGDP:TheProductionApproachMarketValueNewlyProducedGoodsandServicesValued-AddedTechniqueCapitalGoodsInventoryInvestmentFixedPeriodofTimePolicyandPractice:CanGDPBuyHappiness?Box:StocksVersusFlowsFIGURE2.1StocksVersusFlowsGDPisthetotalspendingoncurrentlyproducedfinalgoodsandservicesintheeconomyNationalincomeidentity:TABLE2.1GDPandItsComponents,2009ConsumptionExpenditureInvestmentBox:MeaningoftheWordInvestmentGovernmentPurchasesNetExportsFIGURE2.2ExpenditureComponentsofU.S.GDP,1950-2010ChangesintheSpendingComponentsofGDPOverTimeBox:AnInternationalComparisonofExpenditureComponentsFIGURE2.3SharesofExpenditureComponentsforDifferentCountriesMeasuringGDP:TheIncomeApproachTABLE2.2IncomeApproachtoGDP,2009IncomeMeasuresIncomeMeasures(cont’d)IncomeMeasures(cont’d)RealVersusNominalGDPRealVersusNominalGDP(cont’d)If2005isthebaseyear,thenrealGDPfortheyear2012is:RealGDPin2012=(priceofapplesin2005✕quantityofapplesin2012)+(priceoforangesin2005✕quantityoforangesin2012)RawdataonGDPtendstofallincoldandsnowymonthsTherefore,economicstatisticslikeGDPdataareseasonallyadjustedtoaccountforregularseasonalfluctuationswithinayearChain-WeightedMeasuresofRealGDPMeasuringInflationGDPDeflatorPCEDeflatorConsumerPriceIndexConsumerPriceIndexPolicyandPractice:PolicyandOverstatementsoftheCostofLivingInflationRateFIGURE2.4U.S.InflationRateswithDifferentPriceIndexes,1950-2010PercentageChangeMethodandtheInflationRatePercentageChangeMethodandtheInflationRate(cont’d)MeasuringUnemploymentUnemploymentRate:NumberofUnemployedLaborForceFIGURE2.5UnemploymentintheAdultCivilianPopulation,2010MacroeconomicsInTheNews:UnemploymentandEmploymentMeasuringInterestRatesMacroeconomicsInTheNews:InterestRatesRealVersusNominalInterestRatesRealVersusNominalInterestRates(cont’d)RealVersusNominalInterestRates(cont