Macroeconomics
Chapter 8
GDP: Measuring Total Production and Income
Microeconomics and Macroeconomics
Microeconomics is the study of how households and firms
make choices, how they interact in markets, and how the g
overnment attempts to influence their choices.
In contrast, macroeconomics is the study of the economy
as a whole, including topics such as inflation, unemploym
ent, and economic growth.
Some Important Macroeconomic
Terms
Business cycle: Alternating periods of economic
expansion and economic recession.
Expansion
Recession
Economic growth
Inflation rate
Goal of This Chapter
Over the coming chapters, we will explore many aspects of
the economy, including how all the elements on the previous
slide relate to one another.
For this chapter, we have a less lofty goal:to figure out how
to measure the total output of an economy.
•Being able to measure total output is incredibly important,
since much of macroeconomics depends on our ability to
measure and predict aggregate economic activity.
8.1 Gross Domestic Product Measures
Total Production
The most common measure used by economists of overall
economic activity in an economy is gross domestic prod
uct, or GDP.
Gross domestic product (GDP): the market value of all
final goods and services produced in a country during a
period of time, typically one year.
We will examine each of the parts of this definition in turn.
“Market Value”
Gross domestic product: the market value of all final goo
ds and services produced in a country during a period of ti
me, typically one year.
We cannot add together the number of cars, melons, hairc
uts, and all other goods and services without agreeing on
a common way to measure them.
The best practical way is to value each good and service in
monetary terms, and the best measure of this that we have
is the price that each good or service is sold for.
“Final Goods and Services” (1 of 2)
Gross domestic product: the market value of all final goods
and services produced in a country during a period of time, t
