Chapter 23: Measuring a Nation's Income

Chapter 23 discusses GDP and income. Because every transaction has a buyer and a seller, the total expenditure in the economy must equal the total income in the economy. Gross Domestic Product measure an economy's total expenditure on newly produced goods and services and the total income earned from the production of these goods and services. More precisely, the GDP is the market value of all final goods and services produced within a country in a given period of time. GDP is divided among four components of expenditure: consumption, investment, government purchases, and net exports. Consumption includes spending on goods and services by households, with the exception of purchases of new housing. Investment includes spending on new equipment and structures, including household's purchases of new housing. Government purchases include spending on goods and services by local, state, and federal governments. Net exports equal the value of goods and services produced domestically and sold abroad, subtracted by the value of goods and services produced abroad and sold domestically. Exports - Imports = Net exports. Nominal GDP uses current prices to value the economy's production of goods and services. Real GDP uses constant base-year prices to value the economy's production of goods and services. The GDP deflator measures the level of prices in the economy.