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CHAPTER 23 (7)
NATIONAL INCOME ACCOUNTING

LAUGHER CURVE
73.6 percent of statistics are made up on the spot.
Anonymous
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CHAPTER OVERVIEW: What’s It All About?
The chapter deals with national income accounting – how it was developed and why it is being
used world wide to measure aggregate economies. The broadest measure of national income
accounting is gross domestic product (GDP) -- the total value of all final goods and services
produced in an economy in a one-year period. There are two approaches to calculating GDP: the
expenditure approach and the income approach. The expenditure approach is equal to the sum of
the four categories of expenditures: GDP = C + I + G + (X - M). National income is the total
income earned by citizens and businesses in a country in one year. It may be misleading to
compare GDPs of various nations. There are also a number of limitations to national income
accounting. With all its warts, it is still a valuable activity to pursue.
CHAPTER OBJECTIVES: Students Should Be Able To …
1. State why national income accounting is important. Depression-era economists needed a
way to measure the economy so they could determine the effect spending and tax policies
would have on it. The set of rules and definitions they developed measures the aggregate
economy today.
2. Define GDP and calculate GDP in a simple example, avoiding double counting. Gross
domestic product (GDP) is the total value of all final goods and services produced in an
economy in a one-year period. To calculate GDP, all goods and services produced by an
economy must be weighted, that is, each good and service must be multiplied by its price.
Once quantities of a particular good or service are multiplied by its price, we arrive at a value
measure of the good or service. Finally, all the value measures are added to arrive at GDP.
3. Explain why GDP can be calculated using either the income or expenditures approach.
Income equals output because of the national income accounting identity.
4. List the four expenditures components of GDP. GDP = C + I + G + (X – M).
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5. Distinguish between real GDP and nominal GDP. Nominal GDP is GDP calculated at
existing prices. Real GDP is nominal GDP adjusted for inflation.
6. State some limitations of national income accounting. These include: (1) GDP measures
market activity, not welfare; (2) measurement errors (GDP figures do not measure all market
economic activity), (3) adjusting GDP for inflation, and (4) misinterpretation of
subcategories.
7. Describe the shortcomings of using GDP to compare standards of living among countries.
Per capita can be a poor measure of the various living standards in various nations. To get
around the problems, economists use purchasing-power parity, which adjusts for different
relative prices among nations before making comparisons.
WHAT’S NEW? Revisions to This Edition
This chapter was updated significantly to reflect new data. The calculation of personal income
was adjusted and a table showing the relationship between GDP and national income as well as
personal and personal disposable income has been added. Another new table shows the
relationship between nominal GDP, real GDP and the GDP deflator.
DISCUSSION STARTERS: Get Your Class Rolling
1. What negative effects may economic growth (increases in real GDP over time) have on social
welfare (well being)? What positive effects?
2. What do you think causes changes in each of the expenditure (spending) components of GDP
thereby causing changes in our economy’s output, employment, and income levels?
3. Why is depreciation for the entire economy sometimes called the “capital consumption
allowance”?
4. What problems may one encounter in comparing the GDP of different nations?
5. Why do economists make a distinction between an “accounting” profit (equal to revenues
minus all costs except the opportunity cost of the entrepreneur) and “economic” profit (equal
to revenues minus all costs including the payment to the entrepreneur equal to his or her
opportunity cost of being in that business)?
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Chapter 23 (7): National Income Accounting
TIPS FOR TEACHING LARGE SECTIONS
Multiple-Choice Quizzes
Quizzes can be very helpful in large classes because they give you a way of keeping
attendance without keeping attendance. I often give a three- to four-minute quiz at the beginning
of class, and I review the answers to the quiz at the end of the lecture. In large classes, for
chapters that do not have specific models, I give a three- to five-multiple-choice question
quizzes. (Students get a point for each right answer.) These can be computer graded, but, even if
they are not, they can be graded relatively quickly. There is usually cheating, although I offer
three variations of the quizzes (the test bank generator does this for me). I mark the variation in
the corner with an A, B or C. for grading purposes. This eliminates some, but not all, cheating.
Since the quizzes are given as much for attendance as for knowledge, I am not too concerned
about the cheating, but I announce in class that everyone is to turn their paper over once they
have completed the quiz. If a student is absent, he or she gets a zero. I allow all students to
subtract the lowest three quiz grades from their scores, and I then curve the combined quiz grades
at the end of the semester. These combined quizzes account for 20% of the student’s final grade.
ON THE WEB: Integrating New Media into the Classroom
http://www.acaus.org/history/hsintro.html is the Web site of the Association of Chartered
Accountants in the U.S. (ACAUS). Begun in England 150 years ago, this association has met the
needs of accountants on four continents. Politics: none.
http://www.census.gov/statab/www/ is the Web site of the U.S. Census Bureau’s, Statistical
Abstract of the U.S. There are links to a great number of areas of statistical interest. You can
also order the Statistical Abstract from this site. Politics: statistical, none.
http://www.uvic.ca/econ/ is the Web site of Canada’s University of Victoria Department of
Economics that shows a series of bar charts showing the “Size of Hidden Economy as % of GDP
Various Countries, 1994 vs. 1978.” Some of the nations shown are the U.S., Canada, Japan, and
virtually every country in Europe. Politics: neutral.
http://w3.access.gpo.gov/eop is the Web site of the Economic Report of the President. The year
2002 is included, as well as a number of previous years. You can download the entire report
from previous years as well as access any year using their search engine. Politics: it depends on
who is President.
http://www.amosweb.com/pdg is the Web site of AmosWEB.com’s “Pedestrian’s Guide to the
Economy,” a handy reference source, it provides answers to many questions to many of the mostasked, a few of the least-asked, and some of the never-asked questions about the economy. Click
on “Fact 7: Our Circular World,” an irreverent explanation of the circular flow model. Politics:
who knows?
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http://www.bea.doc.gov is the Web site of Department of Commerce’s Bureau of Economic
Analysis. There are links to national, industry, international, and regional data, and to
methodologies. This is the outfit that gives out official GDP and related data. Politics:
bureaucratic, statistical, neutral.
STUDENT STUMBLING BLOCKS: Common Areas of Difficulty
A Math Problem for National Income Accounting: An In-Class Review
Answer the following questions based on the data provided.
ECONOMIC DATA FOR SLOBOVIA (BILLIONS OF DOLLARS)
Government purchases
200
Net exports
7
Consumption spending
540
Personal taxes
94
Investment spending
175
Depreciation
52
Transfer payments
68
Net nonbusiness interest income 59
Net foreign factor income
5
Wages and salaries
500
Corporate retained earnings
45
Rental income
35
Indirect business taxes
50
Interest income
140
Social Security contributions
58
1. Calculate: (a) GDP, (b) GNP, (c) NNP, (d) NDP, (e) NI, (f) PI, and (g) disposable personal
income.
GDP = C + I + G + (X – M) =
GNP = GDP + foreign factor income =
NNP = GNP – depreciation =
NDP = GDP – depreciation =
NI = NNP – indirect business taxes =
PI = NI – net nonbusiness interest income – corporate retained earnings –
Social Security contributions + transfer payments =
(g) Disposable personal income = PI - personal taxes =
ANS: (a)
(b)
(c)
(d)
(e)
(f)
2. What does disposable personal income represent?
ANS: It represents “take-home pay” for all income earners added together.
3. What are profits equal to?
ANS: Profits = NI – wages and salaries – rental income – interest income = $150.
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$922
$927
$875
$870
$825
$799
$705
TIES TO THE TOOLS: Bringing the Boxes into the Classroom
Beyond the Tools: Is GDP Biased against Women?
Housespouses’ (male or female) work is not counted in GDP since they are not paid for their
invaluable services to the family. Some say that this discriminates against women who make up
the greater portion of housespouses. In order to include them, the definition of GDP and the
means of collecting GDP data would have to be changed
Applying the Tools: The Underground Economy
In the Sunday supplements, occasionally an article appears predicting the demise of currency. It
is extremely unlikely currency will ever disappear since it is universally used in the underground
economy. Why? It’s untraceable. Some economies including Argentina, Peru, and Russia have
underground economies that are as large as official economy. Ironically, these economies also
use the U.S. dollar in these transactions.
LECTURE OUTLINE: A Map of the Chapter
I. National income accounting.
A. A prelude. Before talking about macroeconomics in depth, the student needs to be
introduced to some terminology. That’s what the chapter does.
1. In the 1930s it was impossible to talk intelligently about macroeconomics since the
discussion lacked rigorous terminology.
2. In the mid-1930s, Keynesians (Simon Kuznets and Richard Stone) began to develop this
terminology.
3. They developed national income accounting -- a set of rules and definitions for
measuring economic activity in the aggregate economy -- that is, in the economy as a
whole (Chapter Objective 1).
B. Gross domestic product (GDP) is the total value of all final goods and services produced
in an economy in a one-year period (Chapter Objective 2a).
1. It is the single most-used economic measure.
2. GDP measures the economic activity that occurs within a country, the economic activity
of the citizens and businesses of a country is measured by gross national product
(GNP) – the aggregate final output of citizens and businesses in an economy in a oneyear period.
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a. The economic activity of U.S. citizens working abroad is counted in GNP but not in
GDP.
b. To move from GDP to GNP, one must add net foreign factor income – the income
from foreign domestic factor sources minus foreign factor incomes earned
domestically – to GDP.
C. Calculating GDP requires adding together million of goods and services.
1. All goods and services produced by an economy must be weighted, that is, each good
and service must be multiplied by its price.
2. Once quantities of a particular good or service are multiplied by its price, we arrive at a
value measure of the good or service.
3. Finally, all the value measures are added to arrive at GDP.
4. GDP is a flow concept.
a. The store of wealth is a stock concept.
b. The stock equivalent to National Income Accounts is the Wealth Accounts -- a
balance sheet of an economy's stocks of assets and liabilities. See Table 23-1.
5. GDP measures final output (Chapter Objective 2b).
a. When one firm sells products to another firm for use in production of yet another
good, the first firm's products are no considered final output (goods and services
purchased for final use) but intermediate products -- products used as input in the
production of some other product.
b. Not accounting for intermediate products would result in double and triple counting.
c. If we did not eliminate intermediate goods, a change in organization -- say, a merger
-- would look like a change in output.
6. There are two ways of eliminating intermediate goods (Chapter Objective 3).
a. The first is to calculate only final output.
b. A second way is to follow the value-added approach. Value added is the increase in
value that a firm contributes to a product or service. See Table 23-2. It is calculated
by subtracting intermediate goods from the value of its sales.
7. Calculating GDP: some examples.
a. Selling your car to a neighbor does not add to GDP. Selling your car to a used-car
dealer, who sells your car to someone else for a higher price, does add to GDP. The
value added is the dealer's services.
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b. Selling a stock or bond does not add to GDP. The stockbroker's commission for the
sales does add to GDP.
c. Social Security payments, welfare payments, veterans' benefits, and other
government transfer payments are not included in GDP.
d. The work of unpaid housespouses does not appear in GDP calculations.
II. There are two methods of calculating GDP: the expenditure approach and the income
approach. This is because of the national income accounting identity.
A. The equality of output and income is an accounting identity in the national income
accounts. See Figure 23-1. There are two approaches to calculating GDP:
1. The expenditure approach is shown on the bottom half of Figure 23-1. Specifically,
GDP is equal to the sum of the four categories of expenditures: GDP = C + I + G + (X M) (Chapter Objective 4).
a. Personal consumption.
(1) When individuals receive income, they can spend it on domestic goods, save it,
pay taxes, or buy foreign goods.
(2) This is the largest and most important of the flows (Flow 4).
(3) It is also the most obvious way in which income received is returned to firms.
b. Gross investment.
(1) The portion of their income that individuals save leaves the income stream and
goes into financial markets (Flow 3).
(2) Business spending on equipment, structures, and inventories is counted as gross
investment.
(a) Sooner or later, plants and equipment wear out. This wearing-out process is
called depreciation – the decrease in an asset’s value.
(b) To differentiate between total or gross private domestic investment and the
new investment that is above and beyond replacement investment, economists
use the term net private investment – gross private investment less
depreciation.
c. Government expenditures.
(1) When individuals pay taxes, those taxes that are either spent by government on
goods and services or are returned to individuals in the form of transfer payments
(Flow 2).
(2) Government payments for goods and services are investment in equipment and
structures are referred to as government expenditures.
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(3) The connection drawn between the government and the financial markets is there
because if the government runs a deficit, it must borrow from financial markets to
make up the difference.
d. Net exports.
(1) Spending on foreign goods escapes the system and does not add to domestic
production, thus spending on imports are subtracted from total expenditures.
(2) Exports to foreign nations are added to total expenditures (Flow 5).
(3) These flows are usually combined into net exports.
e. Table 23-3 shows the breakdown for GDP of selected countries.
f. GDP and NDP.
(1) As stated before, gross investment minus depreciation equals new investment.
(2) Net domestic investment (NDP) is the sum of consumption expenditures,
government expenditures, net foreign expenditures, and investment less
depreciation.
GDP = C + I + G + (X – M)
NDP = C + I + G + (X – M) – depreciation
(3) NDP is actually preferable to GDP as an expression of a nation’s domestic
output.
(4) Since it is so hard to measure depreciation in the real world, economists use
capital consumption allowance rather than depreciation.
2. The income approach.
a. National income is the total income earned by citizens and businesses in a country in
one year (Chapter Objective 2b).
b. Firms make payments to households for supplying their services as factors of
production (Flow 1).
c. These factors are broken up into employee compensation, rent, interest, and profits.
(1) Compensation to employees.
(a) Employee compensation consists of wages and salaries paid to individuals,
along with fringe benefits and government taxes for Social Security and
unemployment insurance.
(b) It is the largest component of national income.
(2) Rents are the income from property received by households.
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(3) Interest is the income private businesses pay to households that have lent the
businesses money.
(4) Profits are the amount that is left after compensation to employees, rents, and
interest that have been paid out as payments to the owners of firms.
d. Table 23-4 shows these components of the U.S. and selected countries.
e. Businesses often focus on disposable income -- that which is roughly equal to
national income less taxes paid by individuals plus transfer payments made to
individuals.
B. Equality of income and expenditure. See Figure 23-2.
1. Income and expenditures must be equal because of the rules of double-entry
bookkeeping.
2. Profit is the balancing item.
3. The national income accounting identity allows GDP to be calculated either by adding
up all values of final output (the expenditures approach) or by adding up the values of
all earnings or income (the income approach).
4. There are three qualifications to the income accounting identity. To go from GDP to
national income:
a. Add net foreign factor income.
(1) National income is all income earned by citizens of a nation and is equal to GNP.
(2) To move from “domestic” to “national,” we add net foreign factor income.
b. Subtract depreciation from GDP.
c. Subtract indirect business taxes from GDP.
C. Other national income terms are personal income and disposable income.
1. Personal income (PI) is national income plus net transfer payments from government
minus amounts attributed but not received.
PI = NI + transfer payments from government
+ net non-business interest income
- corporate retained earnings
- Social Security taxes.
2. Disposable personal income is personal income:
a. Minus personal income taxes and payroll taxes.
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DPI = PI – personal taxes
b. Disposable personal income is what people have readily available to spend.
c. See Table 23-5 for the relationship between GDP and national income and other
measures:
III. Using GDP figures.
A. GDP allows comparisons among countries.
1. GDP gives a measure of economic size and power.
2. Per capita GDP is another measure often used to compare nations' GDP (Chapter
Objective 7).
a. Because of differences in nonmarket activities, per capita can be a poor way to
compare living standards in various nations.
b. To get around the problems, economists use purchasing power parity, which adjusts
for different relative prices among nations before making comparisons.
B. GDP can be used to measure economic welfare over time.
1. Just because GDP rose does not mean welfare rose. It could be only prices rose.
2. Comparing output over time is best done with real output that is nominal output
adjusted for inflation.
C. Real GDP is nominal GDP adjusted for inflation (Chapter Objective 5)
1. Nominal GDP is GDP calculated at existing prices.
2. Real GDP is nominal GDP adjusted for inflation.
a. Real GDP is important to society because it measures what is really produced.
b. By dividing nominal GDP by the GDP deflator, we arrive at real GDP.
IV. Some limitations of national income accounting (Chapter Objective 6).
A. GDP measures market activity, not welfare.
1. GDP does not measure happiness, nor does it measure economic welfare.
2. Welfare is a complicated idea, very difficult to measure.
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B. Measurement errors in GDP compromise its usefulness.
1. GDP figures do not measure all market economic activity. They do not measure the
following:
a.
b.
c.
d.
e.
Illegal drug sales.
Under-the-counter sales of goods to avoid income and sales taxes.
Work performed and paid for in cash.
Unreported sales.
Prostitution, loan sharking, extortion, and other illegal activities.
2. Estimates of the size of the underground economy range from 1.5 to 20 percent of GDP.
3. A second type of measurement error occurs in adjusting GDP for inflation.
a. If the price and the quality of a product go up together, has the price really gone up?
b. Is it possible to measure the value of quality increases?
C. The subcategories of GDP can be misinterpreted.
1. For example, the line between investment and consumption is often fuzzy.
a. Buying a steam iron would be consumption, and if it is used to iron team T-shirts
sold by a home business, it would still be counted as consumption.
b. Investment includes private housing units, but they do not usually add to our stock of
productive tools. The garages and spare bedrooms might if they are used in an
income-producing capacity.
2. Some social scientists have developed alternatives to GDP such as the Gross Progress
Indicator (GPI). The GPI tries to measure pollution, education, and health concerns, as
well as GDP.
V. Conclusion.
A. National income accounting should be used with sophistication.
B. It is a powerful economic tool that informs average citizens as to which the direction the
economy is moving.
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Chapter 23 (7): National Income Accounting
POP QUIZ
NAME: __________________________________
COURSE: ________________________________
1. GDP is:
a. the total market value of all final goods and services produced in an economy in a one-year
period.
b. our only measure of a nation’s social well being.
c. a measure of the economic activity of the citizens and businesses of a country; GNP
measures the economy activity that occurs within a nation’s borders.
d. equal to C + I + G + (M – X).
2. GDP:
a. adjusted for inflation is called net GDP.
b. includes intermediate but not final goods.
c. plus net foreign factor income equals GNP.
d. includes second-hand sales.
3. In the national income accounts:
a. total government spending is the largest component of GDP.
b. personal consumption expenditures is the largest component of GDP.
c. investment spending represents the purchase of stocks and bonds.
d. net exports is defined as imports minus exports.
4. Which of the following would not cause America’s GDP to increase?
a. Japan buys more wheat from the U.S.
b. The federal government spends more on ships for the Navy.
c. Businesses spend more on capital.
d. Americans buy more Mercedes cars from Germany.
5. In the national income accounts:
a. inventory is not included as part of investment expenditures.
b. GDP will increase if C, I, G, and/or X increases, and/or M decreases.
c. GNP plus net foreign factor income equals GDP.
d. GDP is a balance sheet of an economy’s stock of assets and liabilities.
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6. Regarding GDP:
a. per capita GDP is calculated by dividing population by GDP.
b. real GDP is adjusted for changes in the general level of prices (inflation and deflation).
c. real GDP is calculated by multiplying nominal GDP by the GDP price deflator.
d. nominal GDP can change only if there is a change in the general level of prices.
7. Which of the following statements is correct concerning the income accounts?
a. National income is total income earned by citizens and businesses of a country.
b. The largest component of national income is profits.
c. The difference between personal income and disposable personal income is indirect
business taxes.
d. Disposable personal income is a measure of the income households have available to spend
before paying personal taxes.
Questions 8, 9, and 10 are based on the following information:
DATA ARE IN TRILLIONS OF DOLLARS
Personal consumption expenditures
$3.0
Net private domestic investment
1.4
Depreciation
0.2
Government purchases of goods and services 2.0
Exports
0.5
Imports
0.3
Net foreign factor income
0.1
8. The economy’s GDP is _________ trillion.
a. 6.6 b. 6.8 c. 7.2 d. 7.4.
9. The economy’s GNP is _________ trillion.
a. 6.6 b. 6.7 c. 6.9 d. 7.9.
10. The economy’s net exports are _________ trillion.
a. –0.2 b. 0.5 c. 0.8 d. 0.2.
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ANSWERS TO POP QUIZ
1. a 2. c 3. b 4. d 5. b 6. b 7. a 8. b 9. c 10. d
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Chapter 23 (7): National Income Accounting
IN-CLASS EXERCISE: Learning Concepts through Practice
A Happiness Index
While GDP measures the total value of all final goods and services produced in an economy in a
one-year period, it does not measure happiness. Just because real GDP is increasing and the
average person in the country is economically better off, it does not necessarily mean that people
are happier.
So, how happy are you?
State of Happiness
Points
Ecstatic
5
Very happy
4
Happy
3
Somewhat unhappy
2
Depressed
1
Directions:
Circle the number that most closely represents your average state of happiness for the past year
and turn in your response. We will calculate the class average in a few minutes.
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Chapter 23 (7): National Income Accounting
CASE STUDIES: Real-World Cases of Textbook Concepts
Case Study 23-1: Should Mothers Be Compensated for Mothering?
Ann Crittendon in her book, The Price of Motherhood: Why the Most Important Job in the World
Is Still the Least Valued (Metropolitan Books, 2001), states that “one can say that motherhood is
now the single greatest obstacle left in the path to economic equality for women.”
But isn’t motherhood saintly, selfless, its own reward? Women who try to put a dollar value on
the services they render their family are thought to be crass, niggardly, and tacky. Besides how
would you go about it?
Childless women now earn on average nearly as much as men, married or unmarried. Mothers
lag far behind. Many mothers take a 10-to-15-year break in work to care for their families, and
often have to start at the bottom when they reenter the workforce. Crittendon, a former New York
Times reporter, did exactly that. She calculated that a couple with a combined income of $81,500
will lose $1.35 million if they have a child cared for by a stay-at-home mother. The lost income
is primarily in wages forgone by the primary caregiver.
Crittendon argues the following:
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
A mother’s work should be counted as real labor that benefits the economy by providing
the next generation of educated workers.
Mothers should have the rights other workers have.
Mothers ought to be entitled to half their family’s income and assets. California and two
other states recognize this contribution while 47 do not.
“A married mother is a ‘dependent,’ and a divorced mother is ‘given’ what a judge
decides she and her children ‘need.’ Courts in many states are allowed to ignore the
value of her caregiving, as if her work at home counted less than a husband’s paycheck.”
Source: Joan Ryan, “A Mother’s Work Has a Value Worth Real Compensation,” Sacramento
Bee, February 19, 2001, p. B9.
Questions:
1. Should mothers be compensated for mothering?
2. Mothers provide invaluable services to their families, but so do fathers. In what way would
fathers be compensated for fathering?
3. If a father took time off from work to engage in parenting, should his lost wages be
considered in the case of divorce?
4. Why do you think there are so few states like California that split the assets of a marriage 5050 in the event of divorce?
5. What do you think public policy should be in this matter?
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Chapter 23 (7): National Income Accounting
Case Study 23-2: GDP: The Mother of All Numbers
The Commerce Department’s Bureau of Economic Analysis (BEA) compiles economic data on a
continuing basis and issues routine reports. There are:

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

Monthly retail reports used to estimate part of consumer spending.
Monthly automobile reports used to estimate part of consumer spending.
Manufacturing inventories and sales reports that go into business investment.
International trade reports used to compute net exports.
The BEA then seasonally adjusts the raw data and adds them up to arrive at nominal GDP. Real
GDP (removing the inflation effect) is adjusted for price changes using chain-weighting that
makes sure price changes are not skewed when people substitute a cheaper product. Investors do
not pay much attention to the level of GDP but rather if it is rising or falling.
The BEA takes three cuts at reporting GDP.
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The advance report is issued on the last Thursday of the month following the quarter’s
end.
The preliminary report, which usually includes the BEA’s estimate of corporate profits
and margins, is issued a month later.
The final report is issued near the end of the subsequent quarter. For example, on March
28 or so, the final numbers for the fourth quarter are announced.
And that’s not the end of it. Yearly and benchmark revisions come at regular intervals for
five years thereafter. To access these data see www.bea.doc.gov.
Despite the fact that these data have been issued since 1929, the BEA continues to tweak their
analyses to correct flaws.



A major complaint is timing – the quarterly reports lag behind the monthly reports.
The BEA has few data on the huge private service sector (remember that about 80 percent
of consumer spending goes to services). This includes medical care, financial services,
haircuts, and furnace cleaning.
Revisions can sometimes slam investors not to mention the Fed. In 2000’s first quarter,
preliminary reports showed an economy surging by 4.8 percent. Subsequent reports
revised real GDP downward to 2.3 percent. Investors were angered. The Fed was
flabbergasted.
In order to do a better job, the BEA has requested $11 million in added funding for fiscal 2003.
The money would be used to hasten the release of trade data and gathering real data on the
service sector that will reduce the magnitude of the revisions.
GDP numbers are not perfect but should not be ignored. And if you are looking for a snapshot
photo of the economy, this is it.
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Chapter 23 (7): National Income Accounting
Source: Kathleen Madigan, “GDP: The Mother of All Numbers,” Business Week, March 18,
2002, p. 104.
Questions:
1. Are there any disadvantages to the GDP figures not mentioned in this article?
2. Why do you suppose the underground economy is not mentioned?
3. Why would substituting cheaper products skew GDP data?
4. Why doesn’t Wall Street pay much attention to the level of GDP but rather its growth rate?
5. Do you think additional funding will cure all the BEA’s problems with GDP data?
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