measuring total output - Chapter 6 Measuring Total Output...

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Chapter 6: Measuring Total Output and Income GDP is primary measure of ups and downs in economy (business cycle) Output increase, jobs increase, income increases, GDP can be measured either in terms of the total value of output produced or as the total value of income generated in producing that output Nominal GDP (GDP) – the value of total output measured in current prices Real GDP – a measure of output that has been adjusted for price level changes Measuring Total Output GDP = personal consumption (C) + gross private domestic investment (I) + government purchases (G) + net exports (X n ) Flow variable – a variable that is measured over a specific period of time E.g. income – how much paid per year, per month, or per hour Stock variable – a variable that is independent of time E.g. balance in checking account (see how much money in bank) 1. Personal Consumption – a flow variable that measures the value of goods & services purchased by households during a time period Represents a demand for goods & services placed on firms by households Production of consumer goods & services = 70% of total output
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