KRUGMAN_WELLS_MACRO_CHAPTER07 - > Tracking the Macroeconomy...

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>> AFTER THE REVOLUTION chapter 159 7 visiting experts had to engage in a lot of edu- cated guesswork: Portugal’s economic data collection had always been somewhat incom- plete, and it had been further disrupted by po- litical upheavals. For example, the country’s statisticians normally tracked construction with data on the sales of structural steel and concrete. But in the somewhat chaotic situa- tion of 1975, these indicators were moving in opposite directions because many builders were ignoring the construction regulations Tracking the Macroeconomy What you will learn in this chapter: ± How economists use aggregate measures to track the perform- ance of the economy ± What gross domestic product, or GDP, is and the three ways of calculating it ± The difference between real GDP and nominal GDP and why real GDP is the appropriate measure of real economic activity ± The significance of the unem- ployment rate and how it moves over the business cycle ± What a price index is and how it is used to calculate the inflation rate W alter Bibiko w/ Index Stock Guy LeQuerrec/ Magnum N DECEMBER 1975 THE GOVERNMENT of Portugal—a provisional govern- ment in the process of establishing a democracy—feared that it was facing an economic crisis. Business owners, alarmed by the rise of leftist political parties, were issuing dire warnings about plunging pro- duction. Newspapers speculated that the economy had shrunk 10 or even 15% since the 1974 revolution that had overthrown the country’s long-standing dictatorship. In the face of this sup- posed economic collapse, some Portuguese were pro- nouncing democracy itself a failure. Others declared that capitalism was the culprit and demanded that the gov- ernment seize control of the nation’s factories to force them to produce more. But how bad was the situation, really? To answer this question, Portugal’s top monetary of- ficial invited his old friend Richard Eckaus, an econo- mist at the Massachusetts Institute of Technology, and two other MIT economists to look at the country’s na- tional accounts, the set of data collected on the coun- try’s economic activity. The With accurate economic data, Portugal was able to make the transition from revolution in 1975 to a prosperous democracy today. I
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160 PART 3 INTRODUCTION TO MACROECONOMICS The National Accounts Almost all countries calculate a set of numbers known as the national income and product accounts . In fact, the accuracy of a country’s accounts is a remarkably reliable indicator of its state of economic development—in general, the more reliable the ac- counts, the more economically advanced the country. When international economic agencies seek to help a less developed country, typically the first order of business is to send a team of experts to audit and improve the country’s accounts.
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KRUGMAN_WELLS_MACRO_CHAPTER07 - > Tracking the Macroeconomy...

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