Chapter 19: Measuring Economic Performance
1. It is worth emphasizing that every variable macroeconomics tries to deal with has limitations–nothing is
–
discussing those limitations. It is important that students know something about macroeconomics
2. A way to motivate student interest in how well macroeconomic variables such as GDP are measured
and why it could matter is to ask them whether they are at all concerned with whether their grades
accurately measure their comprehension in their classes.
3. You may wish to emphasize that because the circular flow variables (C, I, G, X-M) are theoretically
-counting or multiple
5. You may wish to remind students that while exchanges of financial assets such as stocks, bonds and
houses are not counted in GDP, the broker fee or commission you pay is counted as a newly produced
service.
6. Note that if the fact that substantial amounts of consumption can be consumer durables, which are
really largely forms of investment, is ignored, and all of measured consumption is thought of as used up
7. A useful classroom question to highlight some difficulties in categorizing components of GDP is to ask
students whether education spending should be viewed as consumption of a current service or as
investment in human capital.
9. Note that when the government produces something where no market reveals what it is worth (e.g.,
aircraft carriers), GDP accounts assume those outputs are worth what they cost to produce, which could
10. Remind students that GDP values are determined by market prices. Emphasize that as a result, our
knowledge of the value of output i
11. For students who are taking microeconomics as well as macroeconomics, you might need to remind
12. Note that if dollars are a yardstick of value, any errors in estimating the changing value of dollars over
time amount to measuring with an inaccurate yardstick, and will result in mistaken measures of all real
(adjusted for inflation) variables.
13. An extension of the text discussion of per capita measures that may be useful in class would be to
14. Make sure students realize that different relative sizes of non-market and underground economies
15. A good classroom way to reinforce GDP measurement issues is to ask what happens to GDP when a
student goes from public school to home schooling.
16. A good class discussion starter is to ask students why the size of the underground economy would
17. Another good class discussion starter is to as students if they can see how inflation can be
18. A good classroom discussion starter is to ask students how measured GDP growth would tend to
19. A useful thought question is to ask students whether they would be better or worse off (worse, looking
back) and whether
thought the wage was far higher than it turned out to be. This can then be tied to the unexpected inflation
discussion later in the text.
20. It should be pointed out to students that the difficulties in measuring macroeconomic variables make it
which different markets interact with each other, which is helpful because of how complex those chains of
relationships can be.