3.1 Measuring economic activity and illustrating its variations

National income accounting measures production, income and expenditure; output, income and spending are linked views of the circular flow.

Definitions handle imports, inventories and depreciation to avoid double counting.

State the approach and period, then exclude intermediate goods.

Expenditure GDP is C+I+G+(X−M); imports are subtracted because they were not produced domestically.

An account total is a convention, not a welfare score.

GDP measures production within borders; GNI measures income earned by residents, including net income from abroad.

Foreign-owned production can raise GDP while profits leave, so GDP and GNI diverge.

Identify location versus residency before choosing the measure.

A foreign factory adds host GDP; remitted profits reduce host GNI relative to GDP.

Neither measure is automatically better.

Real GDP removes price changes; per-capita GDP divides output by population.

Nominal growth can be inflation, and per-capita output can fall while total GDP rises.

State price basis and population denominator.

GDP rises 5% while prices rise 4%, so real growth is roughly 1% before population adjustment.

Per-capita GDP is an average.

The business cycle describes expansions, peaks, contractions and troughs around a trend.

Output, employment and inflation need not move together; shocks and policy affect duration.

Use multiple indicators to identify the phase.

Falling output with rising unemployment suggests contraction even if one sector grows.

A recession rule is not a universal law.

GDP/GNI measure marketed production or income; well-being also includes health, education, distribution, leisure and environment.

Unpaid care, inequality and pollution may be missing from totals.

Use the measure for its question, then add welfare indicators.

GDP per capita rises while pollution and inequality worsen; output alone cannot show welfare.

Higher GDP is not synonymous with quality of life.