3.1 Measuring economic activity and illustrating its variations

• National income accounting measures economic activity

• Income, output, and expenditure approaches are equivalent in the circular flow model

• Diagram: circular flow of income showing decision-makers, leakages, and injections

• Nominal GDP measures national output within a country

• Nominal GNI adjusts GDP for net income flows with the rest of the world

• Calculation: nominal GDP using the expenditure approach

• Calculation: nominal GNI from data

• Real GDP and real GNI adjust for price changes

• Per capita measures divide real GDP or real GNI by population

• Purchasing power parity (PPP) adjusted measures improve international comparisons

• Calculation: real GDP and real GNI using a price deflator

• Calculation: real GDP per capita and real GNI per capita

• The business cycle shows short-term fluctuations around a long-term growth trend or potential output

• Diagram: business cycle with short-term fluctuations and long-term growth trend

• GDP and GNI statistics have limits when measuring economic well-being

• National income data can be used for comparisons over time and between countries

• Alternative well-being measures include the OECD Better Life Index, Happiness Index, and Happy Planet Index