5 - Measuring Economic Activity

Abstract

This chapter discusses how economic activity is measured. Many groups need to measure national economic activity. Policy makers need to know the condition of the economy so as to judge the need for and effectiveness of economic policies. Businesses need to know the same so that they can make wise investment, sales, and production decisions. Concerned citizens need a measure of economic growth to better judge the nation's progress toward meeting its material needs. Gross national product (GNP) is a measure of the total value of all goods and services produced in an economy in a year. It is a basic measure of market economic activity. GNP is not a good measure of national well-being because it rises and falls when prices change, and GNP can rise when disasters actually reduce well-being. Real GNP (RGNP) is a better measure of annual production because it adjusts for changing prices. RGNP is GNP deflated using the GNP implicit price deflator index.