Chapter 13: Economic Performance

Chapter 13 deals with the way the United States measures its national output and income, along with the topics of population and economic growth.

Section 1 explains Gross Domestic Product (GDP), the nation's most comprehensive measure of total output. Gross National Product is derived from GDP and is the most comprehensive measure of total income. Four other measures of income are net national product, national income, personal income, and disposable personal income. Economists view the economy as being organized into four sectors: the consumer or household sector, the business or investment sector, the government sector, and the foreign sector. These sectors are then combined to form the output-expenditure model, which is written as GDP = C + I + G + F.

Section 2 explains how price indices, which are based on a market basket of representative products, are used to track changes in prices over time. Price indices can be constructed for any product, group of products, or group of consumers. Different base years are often used for different indices, but this is not important since the index numbers for an individual series are only compared with other numbers in the same series.

Section 3 provides an overview of the population census that must be conducted every 10 years. The annual rate of population growth was more than 3 percent until the Civil War, but has declined steadily since then and is now less than one percent annually. Factors that contribute to this trend are a replacement level fertility rate, a longer life expectancy, and constant net immigration. The racial and ethnic mix will also change with gains made by Asians, Hispanics, and African Americans.

Section 4 examines the concept of long-term economic growth as measured in terms of real GDP per capita. Economic growth was negative during the 1930s, but rebounded sharply in the 1940s. Since then, growth has been positive although it has declined modestly in recent decades. Changes in the rate of productivity growth are not fully understood, but it did accelerate after 1996, which will have a favorable impact on economic growth.