if you want them to finish at 2", be 2 1/2" as individuals you add the 7/8" to the 2"- not the 2 1/2" size (you add to the finished size- which would be 2"-not 2 1/2" the 2 1/2" is the unfinished size you want.
the way you did it is correct for making 2 1/2" finished blocks...unfinished 3" --- 1/2" seam allowance