Let me take very quickly the us as a point of reference

Let me take very quickly the US as a point of reference. In our macroeconomy, there are about 325 million Americans- that's a big number-there are about 150 million who are workers, and there are about 8 million, roughly 7.9 million, but it fluctuates month-to-month, who are unemployed, they're looking for work. There are about 28 million businesses in the US macroeconomy-that's a lot to count-most of them very, very small, a few real giants, but the macroeconomy includes all of them and the macroeconomic measures of income and output in the society have to measure across all of that economic activity. And of course, there are millions and millions of products, goods, and services, and they have millions and millions of prices. We have roughly a gross domestic product of about 18 trillion dollars, so just a bit shy of $60,000 per person for our 325 million Americans. From the production side, we can divide that total output during the year into three sectors. One is the goods producing sector, which I'll define as the primary and the secondary sector added together. So it's agriculture and mining, construction and manufacturing, and our utilities industries, producing power for example. And of the 18 trillion dollars of total output, the private goods producing sectors-all the mines and the farms and the manufacturing companies- produced a total of 3.4 trillion dollars. Interesting, by the way, roughly a fifth to a sixth of the total, not as much as the one might imagine, because the US is a service economy. And so if we take the tertiary sector, especially the private part of it, all of the professional services and the transport services and the retail and wholesale goods and the entertainment services and the health provision by private health providers, such as doctors, and the education sector and so forth, that is about two-thirds of the total economy from the production side. 12.3 three trillion dollars. And then if we look at what government did, and this is government at the federal level, the state level, on the local level; it's the police force, it's the fire department, it's the building the roads, it's the national defense, it's the public administration, it's running the courts and running the prisons in the country, it's so providing homeland security, it's job training programs of government and so forth, that comes out to about 2.3 trillion dollars of the total. So this is gross domestic product version one from the production side. Now let's look at the same 18 trillion dollars from the second perspective. 18 trillion dollars of goods and services was produced; what happened to it? Well of that amount, private consumption totaled roughly two-thirds. So a little over 12 trillion dollars was directly consumed of that 18 trillion dollars of output. Another roughly one-sixth, about 3.1 trillion dollars was invested in the country-so that's roughly sixteen%- was the what's called the gross investment rate for the country taking the ratio of total investment to the total gross domestic product. The government provided a similar amount, purchased roughly 3.2 trillion dollars of goods and services of that final output, roughly another sixth of the US output was purchased by government. Now of the total 18 trillion, a little over two trillion was exported to the rest of the world, and a little bit more than that-2.8 trillion- was imported from the rest of the world. If you check it out, you could say that the total amount of goods and services that we had available for purchase was what we produced at home-the GDP-plus the import-so you could say that GDP plus imports equals the consumption plus the investment plus the government services plus the exports. Or you can subtract off the imports from both sides of that identity to say that the gross domestic product is equal to the private consumption plus the private investment plus the government purchases of goods and services plus exports minus imports. And that is the uses version of the gross domestic product. It also totals the very same 18 trillion dollars. Then we can look at the income side. Here again, we start with 18 trillion dollars, it's the same amount of output, but now we have to make a slight adjustment to get the total income of Americans, not the output, and we do that by saying that the total income of Americans-the gross national product-is equal to the gross domestic product- that's the output-plus the earnings that Americans earn from abroad minus the amount that foreigners earn from production in America. That's the gross national product. You recall that they're almost the same. They differ by around 400 billion dollars for this particular year. Now how does that money actually get earned? How is it divided between workers and profits and rental income and so on. This can be calculated the same way. And roughly half of the total, a little bit more than half, is the compensation of employees, about 9.7 trillion of the 18.4 trillion of national income in the United States, of gross national product, is in the form of compensation of employees. There's another component, which is the earnings on rents, as well as the earnings of self proprietors. And this is another two trillion dollars roughly, in addition to the compensation of workers. Then there are the corporate profits, all of the corporations in the country; they earned in profits a little bit more than two trillion dollars as well. Well there's another charge that was taken off of the gross income of the corporations, and that is the depreciation of capital. In other words, outputs produced, but some of it isn't really income, it reflects the wearing out of the capital stock-what we call depreciation-and that is roughly about 2.8 trillion dollars in 2016 that is a part of the gross national product, that is not a form of final income, but is a reflection of the using up of our existing capital base. Then part of the sales of American production ends up as taxes on goods and services paid to the government-that was about 1.2 trillion dollar-and then there's a long list of other balancing items, which is a small adjustment shown here of about 0.6 trillion dollars. The conclusion: we've now looked at the output of the United States in a snapshot in three distinct ways. The total production: 18 trillion. We can say that that comes mainly from the service sector, some from the private goods producing sector, some from government. We can look at it from the point of view of the uses of that output in terms of consumption, investment, and exports. And we can look at it from the perspective of who has earned the income and the division especially between workers and profits and other forms of income. Now there are many further important distinctions that we will need to have in mind as we proceed to study the determination of the gross domestic product of an economy, one of the core purposes of macroeconomics, and one that I want to mention at this stage is the difference of the output in the economy and the dollar value, or the so- called the current price value of the output. We want to distinguish between the amount of production and the prices on average of the goods and services. Suppose you have an economy that is producing the millions of goods and services, and for some reason the production remains the same but the prices in dollars of every one of those items is twice what it used to be. Well the total value of the output of the
economy measured in dollars would be double, because the prices of every good and service doubled, and you would say that the gross domestic product itself, which adds up across all of that output had also doubled. But you'd also say nothing really changed; the prices and the wages and every other price went up, but the production in physical units is still exactly the same that it was before. So we want to take care that we have a measure of the gross domestic product that is, in a sense, measuring in physical units and adjusting for changes of the price level. And we're going to see that, of course, because there is change of the average price level of economy, there is a tendency of the measured value of gross domestic product to diverge from a measure of the physical changes of output over time. This graph shows, for example, the dollar value of gross domestic product of the United States starting in 2009 and coming up to 2016, and it also shows a measure that adjusts for prices to get more consistent measure of the physical output changes of the US economy during this period. Well, starting in 2009 these two measures are set to be the very same, but over time the average prices of goods and services in the US increases by 1-2% per year even if the physical output of goods and services is not changing. So the dollar value of production, which is shown by the line on top, rises faster than the measure of the physical volume of goods and services, which is shown by the red line just beneath it. And over time this adds up to quite a significant difference. If you compare 2009 and 2016, in dollar terms, the economy increased from 14.4 trillion dollars in 2009 to 18.6 trillion dollars in 2016, an increase of almost 30%. But around 10% of that-more precisely, 11%-of that increase was just that the average prices rose by 11% during this period without any change of the physical production of goods and services. So if you just look at the physical changes of goods and services rather than increasing roughly 29%, it's more like a 16% increase in the actual change of the volumes of goods and services produced in the US economy. Most of the time, we're interested when we're measuring changes of output, we're interested in the changes that are the changes stripping away the pure price effects. Of course, when we're interested in controlling inflation, we're precisely interested in understanding why the average price level is rising and often how to stop it from rising as fast as it is rising. This gives, I hope, a useful overview of this absolutely most important macroeconomic variable. So much of macroeconomics is about explaining changes of the levels of gross domestic product over time within a country, and across countries to get comparisons of production, productivity, and living standards across the world.