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Principles of Macroeconomics


3. Measuring the Macroeconomy


In this section we learn about how we measure macroeconomic performance and conditions. We explore three issues: (1) the aggregate level of production in an economy (measured by gross domestic product), (2) the aggregate price level (measured by GDP deflator or the consumer price index), and (3) the conditions in the labor market (measured by the unemployment rate). These are just some of the issues important for measuring macroeconomic conditions, and just some of the measures we have. Still, these measures tell a great deal about the state of the macroeconomy and lay a foundation for more detailed economic measures.


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Measuring Gross Domestic Product

In this Pencast we discuss how to measure the aggregate quantity of production in an economy using the gross domestic product (GDP). We distinguish between nominal GDP (or unadjusted GDP) and real GDP. Both are dollar figures, but the latter is used to measure only the quantity of production, where the former is a composite measure of quantity of goods and services and their market prices. [Play Pencast]


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Measuring Inflation with the GDP Deflator

In this Pencast we discuss how to measure aggregate price level and inflation using the GDP Deflator. The GDP deflator takes information from nominal GDP (which is a composite measure of quantities and market prices) and real GDP (which is a measure of only quantities), to back out a measure of market prices. [Play Pencast]


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Measuring Inflation with the Consumer Price Index

In this Pencast we discuss how to measure aggregate price level and inflation using the consumer price index (CPI). The CPI begins with a "basket" of goods and services that typical consumers purchase (measured regularly by the Bureau of Labor Statistics). The CPI is an aggregate measure of prices using information on how much that basket of goods costs in a given year, relative to what that same basket of goods cost in a previous (base) year. [Play Pencast]


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Measuring Real Value Using Price Indices

If a person's wage increases, it may or may not be a raise in terms of the quantities of goods and services that can be purchased with that wage. It depends on how the wage increased relative to the aggregate price level. In this Pencast, we learn how to calculate the "real" wage using a price index. In previous Pencasts we learned two types of price indices, i.e. index measures of the aggregate price level (the GDP deflator and the CPI). In this Pencast, we learn how to use these measures of the price level to convert the nominal wage (or unadjusted wage) to the real value (i.e., the real purchasing power of the wage). [Play Pencast]


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Measuring Unemployment

In this Pencast, we learn how to measure unemployment. It is not so simple as measuring the number of people without jobs, because some of those people choose not to work, or are unable to work. Examples include retired people, stay-at-home parents, many students, children, and people in prison. We begin by defining the working age population, those who are eligible to work, then the labor force, those who choose to have or seek employment. Given these concepts, we move on to the concept of unemployment. [Play Pencast]


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