The notion of national output lies at the heart of macroeconomics. The total amount of output (goods and services) that a country produces constitutes its ultimate budget constraint. A country can use more output than it produces only if it borrows the difference from foreigners. Large volumes of output—not large quantities of money—are what make nations prosperous. A national government could print and distribute all the money it wanted, turning all of its residents into millionaires. But collectively they would be no better off than before unless national output increased as well. And even with all that money, they would find themselves worse off if national output declined.

Measuring National Output

The most widely accepted ...

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