1.5 Really Important Macroeconomic Ideas

		2 Measuring GDP and Inflation

		For at least five centuries systematic accounting systems have existed for private business, and data on individual behavior have always been available for collection. Microeconomics cannot complain of a lack of empirical data with which to verify its theories, quantify its conclusions, or suggest new directions for research. For macroeconomics, however, the situation is different: the financial, institutional, and legal resources of the government are necessary to collect aggregate data. Although governments have provided this data-collecting service for many years, until recently it was simply a convenient by-product of other government activities such as tax collecting. Until the beginning of the Second World War, all these data consisted of indices of either price levels, production activity and employment, or trends in financial activity.

		In the 1930s the Keynesian approach to macroeconomics (described in chapter 4) was introduced, offering an explanation and policy advice for the Great Depression. As the popularity of this new approach to macroeconomics grew, economists beseeched the government to collect data relevant to the testing and use of Keynesian theory. In response, the government developed the National Income and Product Accounts to measure economic activity, the figurehead of which GDP appears frequently in the popular press.

		The purpose of this chapter is to explain the basic structure of the national income accounts and offer some perspectives on the interpretation and use of the GDP measure.