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Macroeconomics 1CE
Karlan/Morduch/Alam/Wong
Instructor’s Manual
CHAPTER 7
Measuring the Wealth of Nations
Chapter Overview
GDP is a powerful and versatile metric. There are good reasons that it is one of the most
commonly used tools in macroeconomics. It gives a simple measure of the size of an economy
and the average income of its participants. It also allows us to make comparisons over time or
across countries. The system of national income accounts gives us a picture of how output,
expenditure, and income are linked, and a framework for adding up the billions of daily
transactions that occur in an economy. Comparing nominal and real GDP allows us to
disentangle the role of increasing prices versus increasing output in a growing economy. The
GDP deflator and the inflation rate track changes in overall price levels over time—which, as
we’ll see in the next chapter, is a major task in macroeconomics. GDP per capita gives us a sense
of the average income within a country, although it doesn’t tell us about the distribution of
income or quality of life. Finally, calculating real GDP growth rates shows us which direction
the economy is moving, and is an important indicator of recession or depression.
In the next chapter, we’ll dig deeper into the tools that economists use to measure price changes
and the cost of living. When we combine these tools with GDP, we have a menu of
macroeconomic metrics that will allow us to describe and analyze national and international
economies.
Learning Objectives
LO 7.1 Justify the importance of using the market value of final goods and services to calculate
GDP, and explain why each component of GDP is important.
LO 7.2 Explain the equivalence of the expenditure and income approaches to valuing an
economy.
LO 7.3 Explain the three approaches that are used to calculate GDP, and list the categories of
spending that are included in the expenditure approach.
LO 7.4 Explain the difference between real and nominal GDP, and calculate the GDP deflator.
LO 7.5 Calculate and explain the meanings of GDP per capita and the real GDP annual growth
rate.
LO 7.6 Discuss some limitations to GDP, including its measurement of home production, the
underground economy, environmental degradation, and well-being.
Chapter Outline
IT’S MORE THAN COUNTING BERRIES
Karlan 1CE Instructor’s Manual: Chapter 7

Copyright © 2017 McGraw-Hill Education. All rights reserved.
7-1
Macroeconomics 1CE
Valuing an Economy
Unpacking the Definition of GDP (LO 7.1)
Production Equals Expenditure Equals Income (LO 7.2)
Approaches to Measuring GDP (LO 7.3)
The Expenditure Approach
The Income Approach
The "Value-Added” Approach
Using GDP to Compare Economies
Real versus Nominal GDP (LO 7.4)
The GDP Deflator
Using GDP to Assess Economic Health (LO 7.5)
Limitations of GDP Measures
Data Challenges (LO 7.6)
BOX FEATURE: FROM ANOTHER ANGLE – VALUING HOMEMAKERS
BOX FEATURE: FROM ANOTHER ANGLE – THE POLITICS OF GREEN GDP
GDP vs. Well-Being
BOX FEATURE: REAL LIFE – CAN MONEY BUY YOU HAPPINESS?
Beyond the Lecture
Reading Assignment: Unpacking the Definition of GDP (LO 7.1)

Have students examine the current news release of Gross Domestic Product from Statistics
Canada. This is a great way to introduce students to the calculation of GDP and its significance.
Writing Assignment: Unpacking the Definition of GDP (LO 7.1)

Have students review the National Income Accounts entry in The Concise Encyclopedia of
Economics. In the article, Mack Ott underscores the importance of GDP for policy purposes.
Then, ask students to write a short essay about the following:
1. Why is GDP and national income accounting important?
2. How is GDP calculated? How is GDP useful for policy decisions?
Team Assignment/Class Discussion: Using GDP to Assess Economic Health (LO 7.5)
Have students use this data on the World Bank site to examine GDP per capita for a specific
country. You may want to assign each student (or group of students) a country to examine. Ask
the students to research their country outside of class before the in-class discussion. In class,
have students discuss the following:
1. What is GDP per capita for your country?
2. How has GDP per capita changed over time for your country?
3. Can you determine why GDP per capita has changed in this fashion?
4. How does GDP per capita for your country compare to other countries?

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Macroeconomics 1CE
Class Discussion: Data Challenges (LO 7.6)

Have students view this brief clip from The Colbert Report. In the clip, Colbert discusses
individuals who live off of the garbage of others. Discuss the following:
1. How would the consumption of another person’s garbage impact GDP?
2. How well does GDP measure well-being? What issues does GDP miss?
Reading/Writing Assignment: Data Challenges (LO 7.6)

Have students read Hiding in the Shadows by Friedrich Schneider, a publication about the
impact of the shadow economy. This is also a great piece for a writing assignment or to stimulate
class discussion.
Solutions to End-of-Chapter Questions and Problems
Review Questions
1. Canadian car dealers sell both used cars and new cars each year. However, only the sales of
the new cars count toward GDP. Why does the sale of used cars not count? [LO 7.1]
Answer: The production of the used car was already included in GDP when it was first
manufactured. To include the sale of the used car would serve to double-count the car, once
as a new car, once as a used car.
2. There is an old saying, “You can’t compare apples and oranges.” When economists calculate
GDP, are they able to compare apples and oranges? Explain. [LO 7.1]
Answer: When economists calculate GDP, they are able to make this comparison by
converting production to its dollar value. If the economy produces 10 apples selling at $1.50
each and 5 oranges selling at $1 each, the economy has produced (10 x 1.50) + (5 x 1) = $20
of economic production. The economist has now compared apples and oranges.
3. When Canadians buy goods produced in the U.S., Americans earn income from Canadian
expenditures. Does the value of this American output and Canadian expenditure get counted
under the GDP of Canada or the United States? Why? [LO 7.2]
Answer: GDP is the total sum of goods and services produced within a country’s borders.
Goods produced in the U.S. count in the U.S. GDP even if they are consumed in Canada.
4. Economists sometimes describe the economy as having a “circular flow”. In the most basic
form of the circular flow model, companies hire workers and pay them wages. Workers then
use these wages to buy goods and services from companies. How does the circular flow model
explain the equivalence of the expenditure and income methods of valuing an economy? [LO
7.2]

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Macroeconomics 1CE
Answer: In this basic model all firm revenues are turned into wages, and all wages are spent
on the firms’ products. Thus, total production in the economy can either be measured by
summing up all of the firms’ sales (expenditure method) or all of the workers’ wages
(income method).
5. In 2013, the average baseball player earned $3.4 million per year. Suppose that these baseball
players spend all of their income on goods and services each year, and they save nothing.
Argue why the sum of the incomes of all baseball players must equal the sum of expenditures
made by the baseball players. [LO 7.2]
Answer: If nothing from income is left over after spending, then spending must exactly
equal income.
6. Determine whether each of the following counts as consumption, investment, government

purchases, net exports, or none of these, under the expenditure approach to calculating GDP.
Explain your answer. [LO 7.3]
a. The construction of a court house.
b. A taxicab ride.
c. The purchase of a taxicab by a taxicab company.
d. A student buying a textbook.
e. The trading of municipal bonds (a type of financial investment offered by city
government).
f. A company’s purchase of foreign minerals.
Answer:
1. Courthouses are public institutions and are thus counted as part of government
expenditure. In this case, the expenditure is technically an investment by the government.
2. A taxicab ride is a service, so it is counted as consumption.
3. The purchase of a taxicab by the company is an investment.
4. The purchase of a textbook counts as consumption.
5. Neither: Trading financial investments is considered a transfer of ownership, which does
not go into the calculation of GDP.
6. The purchase of raw materials from a foreign country is considered an import and is
therefore counted as part of net exports.
7. If car companies produce a lot of cars this year but hold the new models back in warehouses
until they release them in the new-model year, will this year’s GDP be higher, lower, or the
same as it would have been if the cars had been sold right away? Why? Does the choice to
reserve the cars for a year change which category of expenditures they fall under? [LO 7.3]

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Macroeconomics 1CE
Answer: If the cars are produced this year, they count in this year’s GDP even if they aren’t
sold until next year. If the cars are sold right away, they count as consumption (or as
government purchases if they are sold to the government, or as investment if they are sold to
a firm). If the cars are not sold but instead put into inventory, then the production is counted
as investment.
8. The value-added method involves taking the price of intermediate outputs (i.e., outputs that
will in turn be used in the production of another good) and subtracting the cost of producing
each one. In this way, only the value that is added at each step (the sale value minus the
value that went into producing it) is summed up. Explain why this method gives us the same
result as the standard method of counting only the value of final goods and services. [LO
7.3]
Answer: The only difference between the valued-added method and the final-goods method
is that the production of the economy is added up along the way instead of being totaled at
the end. For example, the height of a staircase is the same whether one measures each
individual stair and adds them up as one climbs the stairs, or whether one simply climbs all
of the way to the top and then measures the total height traveled.
9. Imagine a painter is trying to determine the value she adds when she paints a picture. Assume
that after spending $200 on materials, she sells one copy of her painting for $500. She then
spends $50 to make 10 copies of her painting, each of which sells for $100. What is the value
added of her painting? What if a company then spends $10 per copy to sell 100 more copies,
each for $50? What is the value the painter adds then? If it’s unknown how many copies the
painting will sell in the future, can we today determine the value added? Why or why not?
[LO 7.3]
Answer: The value-added approach determines the value of a good or service by subtracting
the value of the inputs from the value of the outputs. In this case, the painter originally sold
$1,500 worth of paintings, at a cost of $700, which implies that she added $800 in value by
painting. After the company sells another $5,000 worth of paintings at a cost of $1,000, we
can add $4,000 to the original $1,500. If we can’t know how many copies the painting will
sell in the future and at what price, we cannot today know the final value the painter adds
through painting.
10. In a press conference, the president of a small country displays a chart showing that GDP has
risen by 10 percent every year for five years. He argues that this growth shows the brilliance
of his economic policy. However, his chart uses nominal GDP numbers. What might be
wrong with this chart? If you were a reporter at the press conference, what questions could
you ask to get a more accurate picture of the country’s economic growth? [LO 7.4]
Answer: There are many potential problems here. The biggest is that the president is talking
only about nominal GDP and not real GDP. If prices are rising 10 percent per year, then the
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Macroeconomics 1CE
country is not experiencing any real growth; GDP is getting bigger only because prices are
rising.
11. Suppose that the GDP deflator grew by 10 percent from last year to this year. That is, the
inflation rate this year was 10 percent. In words, what does this mean happened in the
economy? What does this inflation rate imply about the growth rate in real GDP? [LO 7.4]
Answer: A 10 percent growth rate in the GDP deflator means that, overall, prices in the
economy have risen by 10 percent. This inflation rate implies the growth rate in real GDP is
essentially 10 percent less than the growth rate in nominal GDP.
12. An inexperienced researcher wants to examine the average standard of living in two
countries. In order to do so, he compares the nominal GDPs in those two countries. What are
two reasons why this comparison does not lead to an accurate measure of the countries’
average standards of living? [LO 7.4, 7.5]
Answer: Two obvious problems are price levels and population. First, if one country has
higher price levels than the other, then the nominal GDPs of the two countries are not
directly comparable. The country with higher price levels will have a comparably lower real
GDP than a country with low price levels. Second, standard of living is better reflected by
GDP per capita, not simply total GDP. For example, India’s GDP is 15 times larger than
Norway’s, but the average Indian person is quite poor compared with the average Norwegian
since there are 1.2 billion Indians and only about 5 million Norwegians. The average
Norwegian earns almost 15 times that of the average Indian.
13. In 2013, according to the International Monetary Fund, India had the world’s 10th-highest
nominal GDP, the 140th-highest nominal GDP per capita, and the 43rd-highest real GDP
growth rate. What does each of these indicators tell us about the Indian economy and how
life in India compares to life in other countries? [LO 7.5]
Answer: With the tenth largest nominal GDP, this statistic tells us that India has a huge
economy that produces lots of goods and services. With the 140th highest nominal GDP per
capita, this tells us that India is still fairly poor. Its high GDP is a result of being a large
country with a huge population, not the result of being rich. Having the 43rd highest GDP
growth rate means that the standard of living in India is rising moderately and that the
country is becoming more productive.
14. China is a rapidly growing country. It has high levels of bureaucracy and business regulation,
low levels of environmental regulation, and a strong tradition of entrepreneurship. Discuss
several reasons why official GDP estimates in China might miss significant portions of the
country’s economic activity. [LO 7.6]

7-6
Macroeconomics 1CE
Answer: In order to avoid the bureaucracy and regulation, small business owners may
operate their firms in the black market. The economic activity created by these small
business owners is real but may be hidden from the view of the government officials
collecting economic data. Similarly, official government GDP statistics are not likely to
include the costs of environmental destruction in their estimates.
15. Suppose a university student is texting while driving and gets into a car accident causing
$2,000 worth of damage to her car. Assuming the student repairs her car, does GDP rise, fall,
or stay constant with this accident? What does your answer suggest about using GDP as a
measure of well-being? [LO 7.6]
Answer: GDP will rise by $2,000 since car repairs are a service produced by the economy.
Obviously, the economy is not $2,000 better off because of this accident; $2,000 worth of
automobile was destroyed and replaced, but only the replacement, and not the destruction,
was included in the basic measure of GDP. This is an example of where GDP is a distinctly
imperfect measure of well-being.
Problems and Applications
1. Suppose a gold miner finds a gold nugget and sells the nugget to a mining company for $500.
The mining company melts down the gold, purifies it, and sells it to a jewelry maker for
$1,000. The jewelry maker fashions the gold into a necklace which it sells to a department
store for $1,500. Finally, the department store sells the necklace to a customer for $2,000.
How much has GDP increased as a result of these transactions? [LO 7.1, 7.3]
Answer: Only the market value of final goods and services count in GDP, as including the
earlier transactions counts the gold multiple times. Thus, GDP has increased by $2,000, the
price of the final necklace produced. Importantly, GDP has not increased by $500 + $1,000 +
$1,500 + $2,000 = $5,000. Counting the price at each intermediate step serves to double- (or
triple- or quadruple-) count the production. If one chose to use the value-added method of
GDP, $500 of value is added by the miner; $500 is added by the mining company ($1,000 −
$500); $500 is added by the jewelry maker ($1,500 − $1,000); and $500 is added by the
retailer ($2,000 − $1,500). Total value added is $500 + $500 + $500 + $500 = $2,000, the
same as in the final-goods method.
2. Table 7P-1 shows the price of inputs and the price of outputs at each step in the production
process of making a shirt. Assume that each of these steps takes place within the country.
[LO 7.1, 7.3]
a. What is the total contribution of this shirt to GDP, using the standard expenditure
method?
b. If we use a value-added method (i.e., summing the value added by producers at each step
of the production process, equal to the price of inputs minus the price of outputs), what is
the contribution of this shirt to GDP?
7-7
Macroeconomics 1CE
c. If we mistakenly added the price of both intermediate and final outputs without adjusting
for value added, what would we find that this shirt contributes to GDP? By how much
does this overestimate the true contribution?
Answer:
a. Using the standard expenditure method, the total contribution of this shirt to GDP is $18.
b. The cotton farmer’s contribution is $1.10 − $0, or $1.10. The fabric maker’s contribution
is $3.50 − $1.10, or $2.40. The sewer and printer’s contribution is $18.00 − $3.50, or
$14.50. Using the value-added method (i.e., summing the value-added by producers at
each step of the production process, equal to the price of inputs minus the price of
outputs) the total contribution of this shirt to GDP is the sum of these three values-added:
$1.10 + $2.40 + $14.50 = $18.00.
c. If we add the totals at each step we wind up with $1.10 + $3.50 + $18.00, or $22.60 in
total production: an overestimate of $4.60
3. The Canadian government gives income support to many families living in poverty. How does
each of the following aspects of this policy contribute to GDP? [LO 7.2]
a. Does this government’s expenditure on income support count as part of GDP? If so, in
which category of expenditure does it fall?
b. When the families buy groceries with the money they’ve received, does this expenditure
count as part of GDP? If so, in which category does it fall?
c. If the families buy new houses with the money they’ve received, does this count as part
of GDP? If so, in which category does it fall?
Answer:
a. Government income support does not count as part of GDP. Government expenditures on
goods and services count as part of G (government spending), but transfers of income
from one group to another do not count as part of G.
b. When recipients of government transfers spend the money on groceries, this spending
counts as C (consumption). The fact that the spending of the government assistance
counts as part GDP is why the transfer itself doesn’t count as part of GDP. Counting the
government assistance as part of G when it is transferred and then again as C when it is
spent would be double-counting the money.
c. When recipients of government transfers spend the money building new housing, this
spending counts as I (investment).
4. Given the following information about each economy, either calculate the missing variable or
determine that it cannot be calculated. [LO 7.2, 7.3]
a. If C = $20.1 billion, I = $3.5 billion, G = $5.2 billion, and NX = –$1 billion, what is total
income?
b. If total income is $1 trillion, G = $0.3 trillion, and C = $0.5 trillion, what is I?
c. If total expenditure is $675 billion, C = $433 billion, I = 105 billion, and G = $75 billion,
what is NX? How much are exports? How much are imports?
7-8
Macroeconomics 1CE
Answer: The expenditure method to calculating the size of an economy involves adding up
all spending on goods and services produced in an economy, and subtracting spending on
imports. The sum of these categories and the equivalence of income (Y) and expenditure give
us the equation Y = C (consumption) + I (investment) + G (government purchases) + NX
(net exports).
a. Total income = C + I + G + NX = $20.1 + $3.5 + $5.2 − $1 = $27.8 billion.
b. Total income = C + I + G + NX. $1t = $0.5t + I + $0.3t + NX. Solving this, I = $0.2 −
NX. Since there are two unknowns (I and NX), neither can be determined.
c. Total income = C + I + G + NX. $675 = $433 + $105 + $75 + NX. Solving for NX, you
get NX = $62 billion. Exports and imports cannot be determined. Since NX is positive,
exports are greater than imports, but we cannot figure out exact amounts with the
information given.
5. Using Table 7P-2, calculate the following. [LO 7.2, 7.3]

a. Total gross domestic product and GDP per person.
b. Consumption, investment, government purchases, and net exports, each as a percentage
of total GDP.
c. Consumption, investment, government purchases, and net exports per person.
Answer:
a. GDP = C + I + G + NX = $770,000 + $165,000 + $220,000 − $55,000 = $1,100,000.
GDP per person = $1,100,000 ÷ 50 = $22,000.
b. C as a % of GDP = $770,000/1,100,000 = 0.7, or 70%. I as a % of GDP =
$165,000/1,100,000 = 0.15, or 15%. G as a % of GDP = $220,000/1,100,000 = 0.2, or
20%. NX as a % of GDP = −$55,000/1,100,000 = 0.05, or 5%.
b. C/person = $770,000/50 = $15,400. I/person = $165,000/50 = $3,300. G/person =
$220,000/50 = $4,400. NX/person = −$55,000/50 = −$1,100
6. Determine which category each of the following economic activities falls under: consumption
(C), investment (I), government purchases (G), net exports (NX), or not included in GDP.
[LO 7.3]
a. The mayor of Edmonton authorizes the construction of a new arena using public funds.
b. A student pays rent on her apartment.
c. Parents pay university tuition for their son.
d. Someone buys a new Toyota car produced in Japan.
e. Someone buys a used Toyota car.
f. Someone buys a new General Motors car produced in Canada.
g. A family buys a house in a newly constructed housing development.
h. The Canadian Armed Forces pays its soldiers.
i. A Brazilian driver buys a Ford car produced in Canada.
j. The Department of Transportation buys a new machine for printing driver’s licenses.

7-9
Macroeconomics 1CE
k. An apple picked in British Columbia in October is bought at a grocery store in Ontario in

December.
l. Hewlett-Packard produces a computer and sends it to a warehouse in another province for
sale next year.
Answer:
a. G. The stadium is a government purchase.
b. C. The student is consuming housing services.
c. C. The parents are purchasing education services.
d. NX. Someone buys a new Toyota car produced in Japan and this increases net exports.
e. Not included in GDP. Only the initial production of a good is included in GDP (in this
case, Japan’s GDP).
f. C. The person is consuming an automobile.
g. I. New home construction is included in GDP as residential investment.
h. G. The government is spending on national defense services.
i. NX rise for Canada. In Brazil, NX fall and C rises, leading to no net change in the
Brazilian GDP.
j. G. The government is spending money on goods and services.
k. C. The apple is produced and consumed in Canada increasing C.
l. I. The computer is counted as inventory.
7. Table 7P-3 shows economic activity for a very tiny country. Using the expenditure approach
determine the following. [LO 7.3]
a. Consumption.
b. Investment.
c. Government purchases.
d. Net exports.
e. GDP.
Answer:

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Macroeconomics 1CE
a. $707,000.
b. $600,000.
c. $800,000.
d. -$200,000.
e. $1,907,000.
8. During the recent recession sparked by financial crisis, the U.S. economy suffered
tremendously. Suppose that, due to the recession, the U.S. GDP dropped from $14 trillion to
$12.5 trillion. This decline in GDP was due to a drop in consumption of $1 trillion and a drop
in investment of $500 billion. The U.S. government, under the current president, responded to
this recession by increasing government purchases. [LO 7.3]
a. Suppose that government spending had no impact on consumption, investment, or net
exports. If the current presidential administration wanted to bring GDP back up to $14
trillion, how much would government spending have to rise?
b. Many economists believe that an increase in government spending doesn’t just directly
increase GDP, but that it also leads to an increase in consumption. If government
spending rises by $1 trillion, how much would consumption have to rise in order to bring
GDP back to $14 trillion?
Answer:
a. To counteract a $1 trillion drop in C and a $0.5 trillion drop in I, you need to raise G by $1.5
trillion (assuming the increase in G doesn’t affect any other variables in the equation—
expenditures = C + I + G + NX).
b. To counteract a $1 trillion drop in C and a $0.5 trillion drop in I with only $1 trillion in increased
G, C would also have to rise by $0.5 trillion.
9. Assume Table 7P-4 summarizes the income of Paraguay. [LO 7.3]

a. Calculate profits.
b. Calculate the GDP of Paraguay using the income approach.
c. What would GDP be if you were to use the value-added approach?
d. What would GDP be if you were to use the expenditure approach?
Answer:
a. Profits = Total business expenditures – Total business revenues = $9 billion.
b. Wages + Interest + Rental income + Profits = $8.3 + $0.7 + $9 = $18 billion.
c. $18 billion: All methods of calculating GDP result in the same value.
d. $18 billion: All methods of calculating GDP result in the same value.
10. Table 7P-5 shows the prices of the inputs and outputs for the production of a road bike. [LO
7.3]
a. What value is added by the supplier of the raw materials?
b. What value is added by the tire maker?
c. What value is added by the maker of the frame and components?
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Macroeconomics 1CE
d. What value is added by the bike mechanic?

e. What value is added by the bike store?
f. What is the total contribution of the bike to GDP?
Answer:
a. $190 = ($20 × 2) + $80 + $70.
b. $20 = ($30 – $20) × 2.
c. $100 = $250 – ($80 + $70).
d. $40 = $350 – [$250 + ($30 × 2)].
e. $150 = $500 – $350.
f. $500 = Sum of value added = Value of final good.
11. Imagine that Canada produces only three goods: apples, bananas, and carrots. The quantities
produced and the prices of the three goods are listed in Table 7P-6. [LO 7.4]
a. Calculate the GDP of Canada in this three-goods version of its economy.
b. Suppose that a drought hits the province of British Columbia. This drought causes the quantity of
apples produced to fall to 2. Assuming that all prices remain constant, calculate the new Canadian
GDP.
c. Assume, once again, that the quantities produced and the prices of the three goods are as listed in
Table 7P-6. Now, given this situation, carrot sellers decide that the price of carrots is too low, so
they agree to raise the price. What must be the new price of carrots if Canadian GDP is $60?
Answer:
a. GDP is the sum of the dollar value of the goods and services produced in a country. In
this case, GDP = $2 × 5 (apples) + $1 × 10 (bananas) + $1.50 × 20 (carrots) = $50.
b. The new GDP = $2 × 2 (apples) + $1 × 10 (bananas) + $1.50 × 20 (carrots) = $44.
c. After carrot sellers raise the price of carrots, the equation becomes $2 × 5 + $1 × 10 + P ×
20 = $60, where P is the price of carrots. We must solve for P, subtracting 20 from both
sides leaving 20(P) = 40. Now divide both sides by 20, leaving P = $2.
12. Based on Table 7P-7, calculate nominal GDP, real GDP, the GDP deflator, and the inflation
rate in each year, and fill in the missing parts of the table. Use 2010 as the base year. [LO
7.4]
Answer:

7-12
Macroeconomics 1CE
13. Suppose that the British economy produces two goods: laptops and books. The quantity
produced and the prices of these items for 2010 and 2011 are shown in Table 7P-8. [LO 7.4]
a. Let’s assume that the base year was 2010, so that real GDP in 2010 equals nominal GDP
in 2010. If the real GDP in Britain was $15,000 in 2010, what was the price of books?
b. Using your answer from part a, if the growth rate in nominal GDP was 10 percent, how
many books must have been produced in 2011?
c. Using your answers from parts a and b, what is the real GDP in 2011? What was the
growth rate in real GDP between 2010 and 2011?
Answer:
a. GDP is the sum of the dollar value of the goods and services produced in a country. In
2010, $15,000 = 50($200) + 1,000(P) where P is the price of books. Solving for P, we get
a price per book of $5.
b. The first thing we need to do is calculate nominal GDP in 2011 if nominal GDP has
grown 10%. GDP(2011) = GDP(2010) x 1.1 = $16,500. Now set $16,500 = 100($150) +
Q($10), where Q is the quantity of books produced. Solving for Q, we find that 150
books must have been produced.
c. Using 2010 as the base year, to find real GDP in year 2011, you take the quantities
produced in year 2011 multiplied by the prices in 2010. Real GDP (2011) = 100($200) +
150($5) = $20,750. The change in real GDP = (New GDP − Old GDP)/Old GDP =
($20,750 − $15,000)/$15,000 = 0.383 = 38.3%.
14. Based on Table 7P-9, calculate nominal GDP per capita in 2008 and 2009, and the real GDP growth
rate between the two years. Which countries look like they experienced recession in 2008–2009?
[LO 7.5]
Answer: The United States and Germany. Nominal GDP/capita = Nominal GDP/Population
Real GDP growth rate = (Real GDPnew – Real GDPold)/Real GDPold. A recession is defined as
a period of significant decline in economic activity. Both Germany and the U.S. have
negative real GDP growth year over year, indicating that they are both likely experiencing a
recession. Egypt and Ghana are both experiencing significant growth, so they are clearly not
in recession. Argentina is a borderline case. It is experiencing very slow but positive GDP
growth.

7-13
Macroeconomics 1CE
15. Table 7P-10 describes the real GDP and population of a fictional country in 2009 and 2010.
[LO 7.5]
a. What is the real GDP per capita in 2009 and 2010?
b. What is the growth rate in real GDP?
c. What is the growth rate in population?
d. What is the growth rate in real GDP per capita?
Answer:
a. Real GDP per capita equals real GDP divided by population. The only trick here is to get
the right number of zeroes on the billions and millions. The real GDP per capita in 2009
is $10,000,000,000/1,000,000 = $10,000. The real GDP per capita in 2010 is
$12,000,000,000/1,110,000 = $10,909.
b. Real GDP growth rate = [GDP(2010) - GDP(2009)]/GDP(2009) = (12 - 10)/10 = 0.20 =
20%.
c. Population growth rate = [Pop(2010) - Pop(2009)]/Pop(2010) = (1.1 - 1)/1) = 0.1 = 10%.
d. Real GDP per capita growth rate = [Per capita GDP(2010) - Per capita GDP(2009)]/Per
capita GDP(2009) = ($10,909 – $10,000)/10,000 = 0.0909 = 9.09%
16. Table 7P-11 shows data on population and expenditures in five countries, as well as the value
of home production, the underground economy, and environmental externalities in each. [LO
7.5, 7.6]
a. Calculate GDP and GDP per capita in each country.
b. Calculate the size of home production, the underground economy, and environmental
externalities in each country as a percentage of GDP.
c. Calculate total and per capita “GDP-plus” in each country by including the value of home
production, the underground economy, and environmental externalities.
d. Rank countries by total and per capita GDP, and again by total and per capita “GDP-
plus.” Compare the two lists. Are the biggest and the smallest economies the same or
different?

7-14
Macroeconomics 1CE
Answer:
a. GDP = C + I + G + NX. GDP per capita = GDP/population.
b. The size of home production, the underground economy, and environmental externalities
in each country as a percentage of GDP is the value of each term divided by GDP. The
total can be found by summing up the individual percentages.
c. GDP-plus = GDP + home production + underground economy + environmental

externalities (which are generally negative so this subtracts from GDP). GDP-plus per
capita = GDP-plus/Population.

7-15
Macroeconomics 1CE
d. As can be seen from the table, the parts in GDP-plus that are not counted in GDP can
make a big difference. The biggest change comes in comparing Bohemia and Saxony.
Under GDP per capita Bohemia is about two-thirds richer than Saxony. Under GDP-plus
per capita, Bohemia is more than 2.8 times richer than Saxony.
17. Suppose a parent was earning $20,000 per year working at a local firm. The parent then
decides to quit his job in order to care for his child, who was being watched by a babysitter
for $10,000 per year. Does GDP rise, fall, or stay constant with this action, and how much
does GDP change (if at all)? [LO 7.6]
Answer: GDP falls because the parent is not working in the labor force and is providing a
do-it-yourself service. Previously, GDP generated by the father and the babysitter (by the
income method) would have been $20,000 (from the father’s job) + $10,000 (from the
babysitter’s job) = $30,000. After the change, the GDP generated is $0 since the father
watching his own children is not a market transaction and therefore not counted in GDP.
Thus, GDP falls $30,000. The fact that household work is not counted as part of GDP if
conducted by a member of the family but is counted as part of GDP if a market transaction
takes place is a clear failing of using GDP as a way to measure economic well-being.

7-16
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A TRESTLE BRIDGE, NO. 2.
When a line of works was laid out through woods, much slashing,
or felling of trees, was necessary in its front. This was especially
necessary in front of forts and batteries. Much of this labor was done
by the engineers. The trees were felled with their tops toward the
enemy, leaving stumps about three feet high. The territory covered
by these fallen trees was called the Slashes, hence Slashing. No
large body of the enemy could safely attempt a passage through
such an obstacle. It was a strong defence for a weak line of works.
The Gabions, being hollow cylinders of wicker-work without
bottom, filled with earth, and placed on the earthworks; the Fascines,
being bundles of small sticks bound at both ends and intermediate
points, to aid in raising batteries, filling ditches, etc.; Chevaux-de-
frise, a piece of timber traversed with wooden spikes, used
especially as a defence against cavalry; the Abatis, a row of the
large branches of trees, sharpened and laid close together, points
outward, with the butts pinned to the ground; the Fraise, a defence of
pointed sticks, fastened into the ground at such an incline as to bring
the points breast-high;—all these were fashioned by the engineer
corps, in vast numbers, when the army was besieging Petersburg in
1864.
A LARGE GABION.
But
the
crownin
g work
of this
corps,
as it
always CHEVAUX-DE-FRISE.
seeme
d to
me, the department of their labor for which, I
believe, they will be the longest remembered, was
that of ponton-bridge laying. The word ponton, or
pontoon, is borrowed from both the Spanish and
French languages, which, in turn, derive it from the
parent Latin, pons, meaning a bridge, but it has now
come to mean a boat, and the men who build such
bridges are called by the French pontoniers. In fact,
the system of ponton bridges in use during the
FASCINES. Rebellion was copied, I believe, almost exactly from
the French model.
The first ponton bridge which I recall in history was built by Xerxes,
nearly twenty-four hundred years ago, across the Hellespont. It was
over four thousand feet long. A violent storm broke it up, whereupon
the Persian “got square” by throwing two pairs of shackles into the
sea and ordering his men to give it three hundred strokes of a whip,
while he addressed it in imperious language. Then he ordered all
those persons who had been charged with the construction of the
bridge to be beheaded. Immediately afterwards he had two other
bridges built, “one for the army to pass over, and the other for the
baggage and beasts of burden. He appointed workmen more able
and expert than the former, who went about it in this manner. They
placed three hundred and sixty vessels across, some of them having
three banks of oars and others fifty oars apiece, with their sides
turned towards the Euxine (Black) Sea; and on the side that faced
the Ægean Sea they put three hundred and fourteen. They then cast
large anchors into the water on both sides, in order to fix and secure
all these vessels against the violence of the winds and the current of
the water. On the east side they left three passages or vacant
spaces, between the vessels, that there might be room for small
boats to go and come easily, when there was occasion, to and from
the Euxine Sea. After this, upon the land on both sides, they drove
large piles into the earth, with huge rings fastened to them, to which
were tied six vast cables, which went over each of the two bridges:
two of which cables were made of hemp, and four of a sort of reeds
called βιβλος, which were made use of in those times for the making
of cordage. Those that were made of hemp must have been of an
extraordinary strength and thickness since every cubit in length
weighed a talent (42 pounds). The cables, laid over the whole extent
of the vessels lengthwise, reached from one side to the other of the
sea. When this part of the work was finished, quite over the vessels
from side to side, and over the cables just described, they laid the
trunks of trees cut for that purpose, and planks again over them,
fastened and joined together to serve as a kind of floor or solid
bottom; all which they covered over with earth, and added rails or
battlements on each side that the horses and cattle might not be
frightened at seeing the sea in their passage.”
Compare this bridge
of Xerxes with that
hereinafter described,
and note the points of
similarity.
One of the earliest
pontons used in the
ABATIS.
Rebellion was made of
India-rubber. It was a
sort of sack, shaped not
unlike a torpedo, which had to be inflated before use. When thus
inflated, two of these sacks were placed side by side, and on this
buoyant foundation the bridge was laid. Their extreme lightness was
a great advantage in transportation, but for some reason they were
not used by the engineers of the Army of the Potomac. They were
used in the western army, however, somewhat. General F. P. Blair’s
division used them in the Vicksburg campaign of 1863.
Another ponton which
was adopted for bridge
service may be
described as a skeleton
boat-frame, over which
was stretched a cotton-
canvas cover. This was
a great improvement THE FRAISE.
over the tin or copper-
covered boat-frames,
which had been thoroughly tested and condemned. It was the variety
used by Sherman’s army almost exclusively. In starting for
Savannah, he distributed his ponton trains among his four corps,
giving to each about nine hundred feet of bridge material. These
pontons were suitably hinged to form a wagon body, in which was
carried the canvas cover, anchor, chains, and a due proportion of
other bridge materials. This kind of bridge was used by the volunteer
engineers of the Army of the Potomac. I recall two such bridges.
One spanned the Rapidan at Ely’s Ford, and was crossed by the
Second Corps the night of May 3, 1864, when it entered upon the
Wilderness campaign. The other was laid across the Po River, by the
Fiftieth New York Engineers, seven days afterwards, and over this
Hancock’s Veterans crossed—those, at least, who survived the
battle of that eventful Tuesday—before nightfall.
But all of the long bridges, notably those crossing the
Chickahominy, the James, the Appomattox, which now come to my
mind, were supported by wooden boats of the French pattern. These
were thirty-one feet long, two feet six inches deep, five feet four
inches wide at the top, and four feet at the bottom. They tapered so
little at the bows and sterns as to be nearly rectangular, and when
afloat the gunwales were about horizontal, having little of the curve
of the skiff.
A CANVAS PONTOON BOAT. FROM A PHOTOGRAPH.
The floor timbers of the bridge, known as Balks, were twenty-five

and one-half feet long, and four and one-half inches square on the
end. Five continuous lines of these were laid on the boats two feet
ten inches apart.
The flooring of the bridge, called chesses, consisted of boards
having a uniform length of fourteen feet, a width of twelve inches,
and a thickness of one and a half inches.
To secure the chesses in place, side-rails of about the same
dimensions as the balks were laid upon them over the outer balks, to
which the rails were fastened by cords known as rack-lashings.
The distance between the centres of two boats in position is called
a bay. The distance between the boats is thirteen feet ten inches.
The distance between the side-rails is eleven feet, this being the
width of the roadway.
AN ANGLE OF FORT HELL (SEDGWICK) SHOWING GABIONS, CHEVAUX-DE-

FRISE, ABATIS AND FRAISE. FROM A PHOTOGRAPH.
An abutment had to be constructed at either end of a bridge, which

was generally done by settling a heavy timber horizontally in the
ground, level with the top of the bridge, confining it there by stakes.
A proper approach was then made to this, sometimes by grading,
sometimes by corduroying, sometimes by cutting away the bank.
The boats, with all other bridge equipage, were carried upon
wagons, which together were known as the Ponton Train. Each
wagon was drawn by six mules. A single boat with its anchor and
cable formed the entire load for one team. The balks were loaded on
wagons by themselves, as were also the chesses, and the side-rails
on others. This system facilitated the work of the pontoniers. In
camp, the Ponton Train was located near army headquarters. On the
march it would naturally be in rear of the army, unless its services
were soon to be made use of. If, when the column had halted, we
saw this train and its body-guard, the engineers, passing to the front,
we at once concluded that there was “one wide river to cross,” and
we might as well settle down for a while, cook some coffee, and take
a nap.
In order to get a better idea of ponton-bridge laying, let us follow
such a train to the river and note the various steps in the operation. If
the enemy is not holding the opposite bank, the wagons are driven
as near as practicable to the brink of the water, unloaded, and driven
off out of the way. To avoid confusion and expedite the work, the
corps is divided up into the abutment, boat, balk, lashing, chess, and
side-rail parties. Each man, therefore, knows just what he has to do.
The abutment party takes the initiative, by laying the abutment, and
preparing the approaches as already described. Sometimes, when
the shore was quite marshy, trestle work or a crib of logs was
necessary in completing this duty, but, as the army rarely
approached a river except over a recognized thoroughfare, such
work was the exception.
While this party has been vigorously prosecuting its special labors,
the boat party, six in number, have got a ponton afloat, manned it,
and ridden to a point a proper distance above the line of the
proposed bridge, dropped anchor, and, paying out cable, drop down
alongside the abutment, and go ashore. The balk party are on hand
with five balks, two men to each, and having placed these so that
one end projects six inches beyond the outer gunwale of the boat,
they make way for the lashing party, who lash them in place at
proper intervals as indicated on the gunwales. The boat is then
pushed into the stream the length of the balks, the hither ends of
which are at once made fast to the abutment.
A WOODEN PONTOON BOAT. FROM A PHOTOGRAPH.
The chess party now step to the front and cover the balks with
flooring to within one foot of the ponton. Meanwhile the boat-party
has launched another ponton, dropped anchor in the proper place,
and brought it alongside the first: the balk party, also ready with
another bay of balks, lay them for the lashing party to make fast; the
boat being then pushed off broadside-to as before, and the free end
of the balks lashed so as to project six inches over the shore
gunwale of the first boat. By this plan it may be seen that each balk
and bay of balks completely spans two pontons. This gives the
bridge a firm foundation. The chess party continue their operations,
as before, to within a foot of the second boat. And now, when the
third bay of the bridge is begun, the side-rail party appears, placing
their rails on the chesses over the outside balks, to which they firmly
lash them, the chesses being so constructed that the lashings pass
between them for this purpose.
The foregoing operations are repeated bay after bay till the bridge
reaches the farther shore, when the building of another abutment
and its approaches completes the main part of the work. It then
remains to scatter the roadway of the bridge with a light covering of
hay, or straw, or sand, to protect it from wear, and, perhaps, some
straightening here and tightening there may be necessary, but the
work is now done, and all of the personnel and matériel may cross
with perfect safety. No rapid movements are allowed, however, and
man and beast must pass over at a walk. A guard of the engineers is
posted at the abutment, ordering “Route step!” “Route step!” as the
troops strike the bridge, and sentries, at intervals, repeat the caution
further along. By keeping the cadence in crossing, the troops would
subject the bridge to a much greater strain, and settle it deeper in the
water. It was shown over and over again that nothing so tried the
bridge as a column of infantry. The current idea is that the artillery
and the trains must have given it the severest test, which was not the
case.
In taking up a bridge, the order adopted was the reverse of that
followed in laying it, beginning with the end next the enemy, and
carrying the chess and balks back to the other shore by hand. The
work was sometimes accelerated by weighing all anchors, and
detaching the bridge from the further abutment, allow it to swing
bodily around to the hither shore to be dismantled. One instance is
remembered when this manœuvre was executed with exceeding
despatch. It was after the army had recrossed the Rappahannock,
following the battle of Chancellorsville. So nervous were the
engineers lest the enemy should come upon them at their labors
they did not even wait to pull up anchors, but cut every cable and
cast loose, glad enough to see their flotilla on the retreat after the
army, and more delighted still not to be attacked by the enemy
during the operation,—so says one of their number.
One writer on the war speaks of the engineers as grasping “not
the musket but the hammer,” a misleading remark, for not a nail is
driven into the bridge at any point.
A PONTOON BRIDGE AT BELLE PLAIN, VA. FROM A PHOTOGRAPH.

When the Army of the Potomac retreated from before Richmond in
1862 it crossed the lower Chickahominy on a bridge of boats and
rafts 1980 feet long. This was constructed by three separate working
parties, employed at the same time, one engaged at each end and
one in the centre. It was the longest bridge built in the war, of which I
have any knowledge, save one, and that the bridge built across the
James, below Wilcox’s Landing, in 1864. This latter was a
remarkable achievement in ponton engineering. It was over two
thousand feet long, and the channel boats were firmly anchored in
thirteen fathoms of water. The engineers began it during the
forenoon of June 14, and completed the task at midnight. It was built
under the direction of General Benham for the passage of the
wagon-trains and a part of the troops, while the rest crossed in
steamers and ferry-boats.
But ponton bridges were not always laid without opposition or
interference from the enemy. Perhaps they made the most stubborn
contest to prevent the laying of the bridges across the
Rappahannock before Fredericksburg in December, 1862.
The pontoniers had partially laid one bridge before daylight; but
when dawn appeared the enemy’s sharpshooters, who had been
posted in buildings on the opposite bank, opened so destructive a
fire upon them that they were compelled to desist, and two
subsequent attempts to continue the work, though desperately
made, were likewise brought to naught by the deadly fire of
Mississippi rifles. At last three regiments, the Seventh Michigan, and
the Nineteenth and Twentieth Massachusetts, volunteered to cross
the river, and drive the enemy out of cover, which they did most
gallantly, though not without considerable loss. They crossed the
river in ponton boats, charged up the steep bank opposite, drove out,
or captured the Rebels holding the buildings, and in a short time the
first ponton bridge was completed. Others were laid near by soon
after. I think the engineers lost more men here—I mean now in
actual combat—than in all their previous and subsequent service
combined.
POPLAR GROVE CHURCH.
Ponton bridges were a source of great satisfaction to the soldiers.

They were perfect marvels of stability and steadiness. No swaying
motion was visible. To one passing across with a column of troops or
wagons no motion was discernible. It seemed as safe and secure as
mother earth, and the army walked them with the same serene
confidence as if they were. I remember one night while my company
was crossing the Appomattox on the bridge laid at Point of Rocks
that D. Webster Atkinson, a cannoneer, who stood about six feet and
a quarter in boots—dear fellow, he was afterwards mortally wounded
at Hatcher’s Run,—being well-nigh asleep from the fatigue of the all-
night march we were undergoing, walked off the bridge. Fortunately
for him, he stepped—not into four or five fathoms of water, but—a
ponton. As can readily be imagined, an unexpected step down of two
feet and a half was quite an “eye-opener” to him, but, barring a little
lameness, he suffered no harm.
The engineers, as a whole, led an enjoyable life of it in the service.
Their labors were quite fatiguing while they lasted, it is true, but they
were a privileged class when compared with the infantry. But they
did well all that was required of them, and there was no finer body of
men in the service.
The winter-quarters of the engineers were, perhaps, the most
unique of any in the army. In erecting them they gave their
mechanical skill full play. Some of their officers’ quarters were
marvels of rustic design. The houses of one regiment in the winter of
’63-4 were fashioned out of the straight cedar, which, being
undressed, gave the settlement a quaint but attractive and
comfortable appearance.
Their streets were corduroyed, and they even boasted sidewalks
of similar construction. Poplar Grove Church, erected by the Fiftieth
New York Engineers, a few miles below Petersburg, in 1864, still
stands, a monument to their skill in rustic design.
CHAPTER XXI.
TALKING FLAGS AND TORCHES.
“Ho! my comrades, see the signal

Waving through the sky;
Re-enforcements now appearing,
Victory is nigh.”
Yes, there were flags in the army which talked for the soldiers, and
I cannot furnish a more entertaining chapter than one which will
describe how they did it, when they did it, and what they did it for.
True, all of the flags used in the service told stories of their own.
What more eloquent than “Old Glory,” with its thirteen stripes,
reminding us of our small beginning as a nation, its blue field,
originally occupied by the cross of the English flag when Washington
first gave it to the breeze in Cambridge, but replaced later by a
cluster of stars, which keep a tally of the number of States in the
Union! What wealth of history its subsequent career as the national
emblem suggests, making it almost vocal with speech! The corps,
division, and brigade flags, too, told a little story of their own, in a
manner already described. But there were other flags, whose sole
business it was to talk to one another, and the stories they told were
immediately written down for the benefit of the soldiers or sailors.
These flags were Signal flags, and the men who used them and
made them talk were known in the service as the Signal Corps.
What was this corps for? Well, to answer that question at length
would make quite a story, but, in brief, I may say that it was for the
purpose of rapid and frequent communication between different
portions of the land or naval forces. The army might be engaged with
the enemy, on the march, or in camp, yet these signal men, with their
flags, were serviceable in either situation, and in the former often
especially so; but I will begin at the beginning, and present a brief
sketch of the origin of the Signal Corps.
The system of signals used in both armies during the Rebellion
originated with one man—Albert J. Myer, who was born in Newburg,
N. Y. He entered the army as assistant surgeon in 1854, and, while
on duty in New Mexico and vicinity, the desirability of some better
method of rapid communication than that of a messenger impressed
itself upon him. This conviction, strengthened by his previous lines of
thought in the same direction, he finally wrought out in a system of
motion telegraphy.[2]
[2] These facts are taken from a small pamphlet written by

Lieutenant J. Willard Brown of West Medford, Mass., and issued
by the Signal Corps Association. Other facts pertaining to
signalling have been derived from “A Manual of Signals,” written
by General Myer (Old Probabilities) himself, since the war.
Recognizing to some extent the value of his system, Congress

created the position of Chief Signal Officer of the army, and Surgeon
Myer was appointed by President Buchanan to fill it. Up to some time
in 1863 Myer was not the Chief Signal Officer alone, but the only
signal officer commissioned as such, all others then in the corps—
and there were quite a number—being simply acting signal officers
on detached service from various regiments.
One of the officers in the regular army, whom Surgeon Myer had
instructed in signalling while in New Mexico, went over to the enemy
when the war broke out and organized a corps for them.
From this small beginning of one man grew up the Signal Corps.
As soon as the value of the idea had fairly penetrated the brains of
those whose appreciation was needed to make it of practical value,
details of men were made from the various regiments around
Washington, and placed in camps of instruction to learn the use of
the “Signal Kit,” so called. The chief article in this kit was a series of
seven flags, varying from two feet to six feet square. Three of these
flags, one six feet, one four feet, and one two feet square, were
white, and had each a block of red in the centre one-third the
dimensions of the flag; that is, a flag six feet square had a centre two
feet square; two flags were black with white centres, and two were
red with white centres. When the flags were in use, they were tied to
a staff, whose length varied with the size of the flag to be used. If the
distance to signal was great, or obstructions intervened, a long staff
and a large flag were necessary; but the four-foot flag was the one in
most common use.
It will be readily inferred that the language of these flags was to be
addressed to the eye and not the ear. To make that language plain,
then, they must be distinctly seen by the persons whom they
addressed. This will explain why they were of different colors. In
making signals, the color of flag to be used depended upon the color
of background against which it was to appear. For example, a white
flag, even with its red centre, could not be easily seen against the
sky as a background. In such a situation a black flag was necessary.
With green or dark-colored backgrounds the white flag was used,
and in fact this was the flag of the signal service, having been used,
in all probability, nine times out of every ten that signals were made.
Before the deaf and dumb could be taught to talk, certain motions
were agreed upon to represent particular ideas, letters, and figures.
In like manner, a key, or code, was constructed which interpreted the
motions of the signal flag,—for it talked by motions,—and in accord
with which the motions were made. Let me illustrate these motions
by the accompanying cuts.
Plate 1 represents a member of the Signal Corps in position,
holding the flag directly above his head, the staff vertical, and
grasped by both hands. This is the position from which all the
motions were made.
PLATE 1.
Plate 2 represents the flagman making the numeral “2” or the letter
“i.” This was done by waving the flag to the right and instantly
returning it to a vertical position. To make “1” the flag was waved to
the left, and instantly returned as before. See plate 3. This the code
translated as the letter “t” and the word “the.” “5” was made by
waving the flag directly to the front, and returning at once to the
vertical.
PLATE 2.
PLATE 3.
The signal code most commonly used included but two symbols,
which made it simple to use. With these, not only could all the letters
of the alphabet and the numerals be communicated, but an endless
variety of syllables, words, phrases, and statements besides. As a
matter of fact, however, it contained several thousand combinations
of numerals with the significance of each combination attached to it.
Let me illustrate still further by using the symbols “2” and “1.”
Let us suppose the flagman to make the signal for “1,” and follow it
immediately with the motion for “2.” This would naturally be read as
12, which the code showed to mean O. Similarly, two consecutive
waves to the right, or 22, represented the letter N. Three waves to
the right and one to the left, or 2221, stood for the syllable tion. So
by repeating the symbols and changing the combinations we might
have, for example, 2122, meaning the enemy are advancing; or
1122, the cavalry have halted; or 12211, three guns in position; or
1112, two miles to the left,—all of which would appear in the code.
Let us join a signal party for the sake of observing the method of
communicating a message. Such a party, if complete, was
composed of three persons, viz., the signal officer (commissioned) in
charge, with a telescope and field-glass; the flagman, with his kit,
and an orderly to take charge of the horses, if the station was only
temporary. The point selected from which to signal must be a
commanding position, whether a mountain, a hill, a tree-top, or a
house-top. The station having been attained, the flagman takes
position, and the officer sweeps the horizon and intermediate
territory with his telescope to discover another signal station, where
a second officer and flagman are posted.
Having discovered such a station, the officer directs his man to
“call” that station. This he does by signalling the number of the
station (for each station had a number), repeating the same until his
signal is seen and answered. It was the custom at stations to keep a
man on the lookout, with the telescope, for signals, constantly.
Having got the attention of the opposite station, the officer sends his
message. The flagman was not supposed to know the import of the
message which he waved out with his flag. The officer called the
numerals, and the flagman responded with the required motions
almost automatically, when well practised.
At the end of each word motion “5” was made once; at the end of
a sentence “55”; and of a message “555.” There were a few words
and syllables which were conveyed by a single motion of the flag;
but, as a rule, the words had to be spelled out letter by letter, at least
by beginners. Skilled signalists, however, used many abbreviations,
and rarely found it necessary to spell out a word in full.
So much for the manner of sending a message. Now let us join the
party at the station where the message is being received. There we
simply find the officer sitting at his telescope reading the message
being sent to him. Should he fail to understand any word, his own
flagman signals an interruption, and asks a repetition of the message
from the last word understood. Such occurrences were not frequent,
however.
The services of the Signal Corps were just as needful and
valuable by night as in daylight; but, as the flags could not then talk
understandingly, Talking Torches were substituted for them. As a
“point of reference” was needful, by which to interpret the torch
signals made, the flagman lighted a “foot torch,” at which he stood
firmly while he signalled with the “flying torch.” This latter was
attached to a staff of the same length as the flagstaff, in fact, usually
the flagstaff itself. These torches were of copper, and filled with
turpentine. At the end of a message the flying torch was
extinguished.
The rapidity with which messages were sent by experienced
operators was something wonderful to the uneducated looker-on. An
ordinary message of a few lines can be sent in ten minutes, and the
rate of speed is much increased where officers have worked long
together, and understand each other’s methods and abbreviations.
Signal messages have been sent twenty-eight miles: but that is
exceptional. The conditions of the atmosphere and the location of
stations were seldom favorable to such long-distance signalling.
Ordinarily, messages were not sent more than six or seven miles,
but there were exceptions. Here is a familiar but noted one:—
In the latter part of September, 1864, the Rebel army under Hood
set out to destroy the railroad communications of Sherman, who was
then at Atlanta. The latter soon learned that Allatoona was the
objective point of the enemy. As it was only held by a small brigade,
whereas the enemy was seen advancing upon it in much superior
numbers, Sherman signalled a despatch from Vining’s Station to
Kenesaw, and from Kenesaw to Allatoona, whence it was again
signalled to Rome. It requested General Corse, who was at the latter
place, to hurry back to the assistance of Allatoona. Meanwhile,
Sherman was propelling the main body of his army in the same
direction. On reaching Kenesaw, “the signal officer reported,” says
Sherman, in his Memoirs, “that since daylight he had failed to obtain
any answer to his call for Allatoona; but while I was with him he
caught a faint glimpse of the tell-tale flag through an embrasure, and
after much time he made out these letters
‘C’ ‘R’ ‘S’ ‘E’ ‘H’ ‘E’ ‘R’
and translated the message ‘Corse is here.’ It was a source of great
relief, for it gave me the first assurance that General Corse had
received his orders, and that the place was adequately garrisoned.”
General Corse has informed me that the distance between the two
signal stations was about sixteen miles in an air line. Several other
messages passed later between these stations, among them this
one, which has been often referred to:—
Allatoona, Georgia, Oct. 6, 1864—2 p.m.

Captain L. M. Dayton, Aide-de-Camp:—
I am short a cheek-bone and an ear, but am able to whip all
h—l yet. My losses are heavy. A force moving from Stilesboro
to Kingston gives me some anxiety. Tell me where Sherman
is.
John M. Corse, Brigadier-General.

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Karlan 1CE Instructor’s Manual: Chapter 7

Beyond the Lecture

Reading Assignment: Unpacking the Definition of GDP (LO 7.1)

Writing Assignment: Unpacking the Definition of GDP (LO 7.1)

Karlan 1CE Instructor’s Manual: Chapter 7

Class Discussion: Data Challenges (LO 7.6)

Reading/Writing Assignment: Data Challenges (LO 7.6)

Solutions to End-of-Chapter Questions and Problems

Karlan 1CE Instructor’s Manual: Chapter 7

6. Determine whether each of the following counts as consumption, investment, government

Karlan 1CE Instructor’s Manual: Chapter 7

Karlan 1CE Instructor’s Manual: Chapter 7

Problems and Applications

5. Using Table 7P-2, calculate the following. [LO 7.2, 7.3]

Karlan 1CE Instructor’s Manual: Chapter 7

k. An apple picked in British Columbia in October is bought at a grocery store in Ontario in

Karlan 1CE Instructor’s Manual: Chapter 7

9. Assume Table 7P-4 summarizes the income of Paraguay. [LO 7.3]

d. What value is added by the bike mechanic?

Karlan 1CE Instructor’s Manual: Chapter 7

Karlan 1CE Instructor’s Manual: Chapter 7

Karlan 1CE Instructor’s Manual: Chapter 7

a. GDP = C + I + G + NX. GDP per capita = GDP/population.

c. GDP-plus = GDP + home production + underground economy + environmental

Karlan 1CE Instructor’s Manual: Chapter 7

Karlan 1CE Instructor’s Manual: Chapter 7

A CANVAS PONTOON BOAT. FROM A PHOTOGRAPH.

The floor timbers of the bridge, known as Balks, were twenty-five

AN ANGLE OF FORT HELL (SEDGWICK) SHOWING GABIONS, CHEVAUX-DE-

An abutment had to be constructed at either end of a bridge, which

A PONTOON BRIDGE AT BELLE PLAIN, VA. FROM A PHOTOGRAPH.

Ponton bridges were a source of great satisfaction to the soldiers.

“Ho! my comrades, see the signal

[2] These facts are taken from a small pamphlet written by

Recognizing to some extent the value of his system, Congress

Allatoona, Georgia, Oct. 6, 1864—2 p.m.

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