Chapter Preview: This chapter deals with national income accounting, the method used by economists to calculate the total value of production within the macroeconomy. We will encounter many definitions. Our main measure of production and the primary focus of this chapter is gross domestic product (GDP), but other useful measures are introduced. As with any measure, though, GDP is imperfect and its limitations must be kept in mind when interpreting it. In addition, we will encounter a useful device of segmenting the economy—the circular flow diagram—and conclude by examining the series of economic fluctuations in GDP known as the business cycle.
By the end of this chapter, you will be able to: