This week's objectives By the end of this week you should be able to:

  • discuss why an economy's total income equals its total expenditure
  • explain how gross domestic product (GDP) is defined and calculated
  • see the breakdown of GDP into its four major components
  • distinguish between real GDP and nominal GDP
  • explain how the consumer price index (CPI) is constructed
  • consider why the CPI is an imperfect measure of the cost of living
  • compare the CPI and the GDP deflator as measures of the overall price level
  • explain the various costs that inflation imposes on society.

Essential Reading: