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May/June 1997, 
Vol. 79, No. 3
Posted 1997-05-01

On Defining Real Consumption

by Edward C. Prescott

The author discusses how theory might be used to better measure the quantities and prices of the commodities aggregated to form real consumption. He thinks a better definition of the real consumption of property and casualty insurance consumption is based upon a gross premium notion. He notes that significantly more resources should be devoted to improving the definition of real consumption in light of modern economic theory—because the social payoff to such an investment would be large, relative to the cost.