Chapter 10

Chapter 10 is titled “measuring a nation’s income” and introduces some of the key components that measure the entire economy. The chapter begins by expressing that income must equal expenditure. It then shifts to define GDP as being “the market value of all final goods and services produced within a country in a given period of time.” Its equation is GDP equals consumption plus investment plus government purchases plus net exports. The chapter then explains the difference between real GDP, goods and services valued at constant prices, versus nominal GDP, goods and services valued at current prices.

An intermediate good is something that will be used to create a final good. The difference is that it can be used to make other things as well, so the price of the intermediate good is included in the final good so that it is not counted multiple times. This would affect GDP because it would be counting the good more than once and the price would be over estimated.

There is good and bad to GDP’s measurements and there are definitely ways that it lacks to measure actual well-being, but overall it is a good measurement and is central to many aspects of the economy. Where it lacks is that it is really only focused on the financial aspects of society without taking into account other things that people find most important, like health, happiness and leisure. However with a better GDP, these things become more available and most people have the option to chose these over making more money. It also faults in measuring for goods and services made at home, the distribution of income, and other important aspects such as the quality of the environment. While the actual aspects that are missing may not have changed, how much society values these things has changed. For example, the environment is now so important to so many people, and has become more of a focus due to global warming, that it may be a more important missing variable than it once was.

Other measures such as Gross National Happiness and the Gross Progress Indicator are also very important. However, they measure different variables than GDP does and have a different focus and while they are also important and could be included or provided along with other information, they don’t have enough to stand as the main measurement alone.