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Chapter 24 - 559-585_CH24_Econ.qxp 4:00 PM Page 559 >...

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>> AFTER THE REVOLUTION chapter 559 24 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 Walter Bibikow/ Index Stock Guy LeQuerrec/ Magnum N D ECEMBER 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 559-585_CH24_Econ.qxp 10/25/05 4:00 PM Page 559
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560 P A R T 1 1 I N T R O D U C T I O N TO M A C R O E C O N O M I C S 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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