National Income Accounting and Macroeconomic Indicators
Core concepts
GDP is the market value of final goods and services produced within a country's borders in a period. It excludes intermediate goods, transfers, and secondhand sales. The expenditure approach sums consumption, investment, government purchases, and net exports. GNP counts output by a country's residents regardless of location. Nominal GDP uses current prices; real GDP uses base-year prices, and the GDP deflator equals nominal divided by real times 100. Real GDP per capita approximates living standards but omits leisure, inequality, and environmental costs. Unemployment measures jobless people actively seeking work; the labor force excludes discouraged workers. Types include frictional, structural, and cyclical; the natural rate combines frictional and structural. Inflation is a sustained rise in the price level, measured by CPI or the deflator; unanticipated inflation hurts lenders and fixed-income earners. The business cycle moves through expansion, peak, contraction, and trough.
Traps to watch
- Counting intermediate or secondhand goods in GDP.
- Treating transfers as government purchases.
- Mixing nominal and real figures when computing growth.
- Counting discouraged workers as unemployed; they leave the labor force.
Worked example
Nominal GDP is $1,200 billion and real GDP is $1,000 billion, so the deflator is 120. If real GDP rises 3% and the deflator rises 2%, nominal GDP grows about 5%. Rule of thumb: nominal growth ≈ real growth + inflation.