CHAPTER FIVE
The Fundamentals of GDP Accounting

Because output lies at the heart of macroeconomics, considerable attention has been devoted to the question of how best to measure it. In fact, macroeconomists have developed a whole accounting system precisely for this purpose. The goal of national economic accounting—also known as GDP accounting—is to measure the value of all output a nation produces over a particular period of time, typically a year. This chapter provides a quick primer on GDP accounting and the essential challenges and trade-offs involved in measuring national output.1

Three Measurement Approaches

As noted in chapter 1, economists ...

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