Measuring Total Output and Income

Read this chapter, to learn about measuring domestic output, and attempt the "Try It" exercises. The material in this chapter concentrates on the four components of GDP: consumption, investment, government purchases, and net exports. Pay attention to the definition of these components as it may differ from your expectations. For example, note that Investment does not refer to the common knowledge definition of investment as in the trading of stock and bonds. Instead, the Investment component refers mainly to the purchase of physical machinery and equipment needed in the production of goods and services. You will revisit certain sections of the chapter later in this unit.

6.3 GDP and Economic Well-Being


What impact would each of the following have on real GDP? Would economic well-being increase or decrease as a result?

  1. On average, people in a country decide to increase the number of hours they work by 5%.
  2. Spending on homeland security increases in response to a terrorist attack.
  3. The price level and nominal GDP increase by 10%.