CHAPTER 9

MEASURIN
G THE
ECONOMY
 MACROECONOMICS
Macroeconomics is the branch of econ
omics which deals with the study on ho
w the whole economy performs.
The total market value of all final goods
and services reflects the performance o
f the economy. This is measured in ter
ms of GDP and GNP.
 SIMON KUZNETS
Simon Smith Kuznetswas aRussian Americ
aneconomistatHarvard Universitywho wo
n the 1971Nobel Memorial Prize in Econo
mic Sciencesfor his empirically founded int
erpretation of economic growth which has l
ed to new and deepened insight into the ec
onomic and social structure and process of
development.
 Kuznets is credited with revolutionizingec
onometrics, and this work is credited with
fueling the so-calledKeynesian"revolutio
n".
An important book of his isNational Inco
me and Its Composition, 19191938. Publi
shed in 1941, it contains a historically signi
ficant work onGross National Product.
THE GROSS DOMESTIC PRODUCT
Gross Domestic Product (GDP) refers to the
market value of all final goods and services
produced domestically in a given period of ti
me.
Nominal GDP is the value (at current price)
of final goods and services produced within
a country for a specific period of time.
Formula:
Nominal GDP = Price x quantity
THE GROSS DOMESTIC PRODUCT
Real GDP is the value (at constant price)
of final goods and services produced withi
n a country for a specific period of time.
Formula:

Real GDP = Nominal GDP

Price Index
 PRICE INDEX
The price index is the ratio of the price of
the current year and the price of the base
year multiplied by 100.
The base year is the point of reference fro
m which constant price of quantity of good
s and services are taken. This is usually rep
resented by a normal economic condition
Formula:
Price Index =Price of the current year
100
Price of the base year
HYPOTHETICAL DATA FOR REAL GD
P
Year Price Index Nominal GDP Real GDP

2005* 100 2,250 2,250

2006 233 4,550 1,953

2007 333 6,250 1,877

2008 400 7,200 1,800

2009 500 8,250 1,650

APPROACHES TO GDP ACCOUN
TING
Industrial Origin Approach or Prod
uction Approach this approach s
ums up the market value of the tot
al production of all major economi
c sectors of the country.
REAL GDP IOA FOR 2010
Quarter
Sector
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

Agriculture, Fishery, and

63,951 57,254 57,090 79,786
Forestry

Industry 117,483 136,926 121,293 140,049

Service 178,969 190,505 187,754 206,093

Gross Domestic Product 360,403 384,685 366,137 425,928

 EXPENDITURE APPROACH
The expenditure approach sums up
the expenses of the institutional se
ctors: households, private corporati
ons, government corporations, and
the general government.
Components of the Expenditure Appro
ach
Consumption or Household Final C
onsumption Expenditure (C). This is
the expenditure by households on
goods and services
Investment or Gross Domestic Capi
tal Formation (I). This is the expend
iture by the businesses.
Components of the Expenditure Appro
ach
Government Final Consumption Expen
diture (G). This is the expenditure by th
e government.
Exports (X). These are the expenditures
on domestically produced goods and s
ervices by foreigners.
The value of exports is added in the co
mputation of GDP.
Components of the Expenditure Appro
ach
Imports (M). These are the expendi
tures on foreign goods and services
by domestic residents.
The value of the imports is deduc
ted in the computation of GDP.
 GROSS NATIONAL INCOME
The Gross National Income (GNI) is the valu
e of final goods and services produced dom
estically and abroad by Filipino citizens.
It is previously known as Gross National Prod
uct.
Formula:
GNI = GDP Net Primary Income
 NET PRIMARY INCOME
Net Primary Income (NPI) is the difference b
etween inflows and outflows of income.
Inflows of income refer to the value of co
mpensation and property income that the
Philippines receives abroad.
Outflows of income represent the value of
compensation and property income that i
s sent abroad.