GDP and GNP

GDP

  • the output of an economy includes both goods and services
    • ex: haircuts, medical care, entertainment, and transportation
  • since 1950, services have increased from under 50% of US GDP to almost 70%
  • GDP measures production
    • sales of old houses, used goods, and financial assets don’t add to GDP, the services of real estate agents, used-car salespeople, brokers, etc. add to GDP (services provided by these agents are produced in the year in which the goods or services are sold)
  • US GDP includes goods and services produced by labor and capital located in the United States
  • for a good or service to count toward a country’s GDP, the production must occur within the borders of that country
  • GDP tells us how much the nation produced in a year, not how much it has accumulated in its entire history
  • nationalwealth:national wealth: the value of a nation’s entire stock of assets
    • 68 percent of the total wealth in the US was owned by the top 10 percent of earners
    • wealth is determined by taking the total market value of all physical and intangible assets owned, then subtracting all debt
    • wealth not only allows you to endless goods of the world, but it also gives you peace of mind that you don’t have to work endlessly to just get by
    • the biggest determinate of wealth is labor income
  • unpaid work and products that have been resold don’t count
  • a healthy GDP rate would be about 2 to 3 percent
  • it is possible for GDP to be too high
  • governments don’t have much power to change GDP

GNP

  • GrossNationalProduct:Gross National Product: the market value of all finished goods and services produced by a country’s permanent residents, wherever located, in a year
    • this is similar to the GDP, but measures what is produced by the labor and property supplied by United States permanent residents
  • the US has the largest GNP in the world

Growth Rate of GDP

  • GDP tells us how much a country produced in a given year
  • growthrateofGDP:growth rate of GDP: tells us how rapidly the country’s production (or income) is rising or falling over time
    • present-past/past x100%
    • ex: retail stores, real estate transactions, food services, etc.
  • the US has a GDP over 20 trillion dollars