GNP and prices

Gross National Product (GNP)

• Definition: GNP represents the total income earned by a nation's permanent residents, encompassing all income generated by the residents regardless of geographical location.

Comparison: GDP vs. GNP

• Key Differences:

  • GNP includes: Income earned by Irish citizens abroad, ensuring a comprehensive view of national income from a citizen’s perspective.

  • GNP excludes: Income earned by foreign nationals within Ireland, which is significant for understanding the economic contribution of domestic citizens versus foreign investments.

• Statistical Insight: In Ireland, GNP is significantly smaller than GDP, highlighting the difference in income generation capabilities domestically versus abroad.

National Income

• Definition: National income is calculated as the total output of an economy by summing all types of income received by people within the economy, including wages, interest, rents, and profits.

• Importance: This measure provides an understanding of the economic activity and income distribution among citizens.

Economic Indicators

• Prices and Economic Output: To make meaningful comparisons of GDP/output over time, it's essential to adjust for changes in price levels, which can vary significantly due to inflation or deflation.

• Price Types:

  • Adjusted Prices (Real): Reflects the actual purchasing power after accounting for inflation, used for accurate economic assessments over time.

  • Nominal Prices (Current): Represents prices at the current time without adjustments for inflation, which can mislead about economic growth.

  • Deflation: The process of adjusting for changes in prices is referred to as deflation, but it should not be confused with a decrease in the price level itself.

Limitations of GDP and GNP

• Well-being Measures:

  • GDP and GNP are criticized for not being great indicators of societal well-being. They only represent paid economic activity and ignore the output's societal benefits.

• Issues:

  • Difficulty valuing public sector output.

  • No account of negative externalities, which can have detrimental effects on the environment and society.

  • No value placed on leisure and unpaid work (e.g., caregiving).

  • Includes spending on detrimental activities (e.g., crime-related expenditures).

Human Development Index (HDI)

• Components: The HDI is composed of three critical dimensions: education, health, and income. This multi-faceted approach provides a more accurate picture of human development than GDP alone.

Subjective Well-Being (SWB)

• Methods of Assessment: Measurement involves asking direct questions where respondents rate their satisfaction on a defined scale.

• Related Measures:

  • Economic Output: Including both GDP and GNP, measures focus on the output generated by an economy.

  • Welfare Indicators: Such as the UN HDI demonstrated earlier.

  • SWB Indices: Better Life Index, Social Progress Index, Ladder of Life are prevalent measures that capture the quality of life.

Misery Index

• Definition: It is a simple measure of economic distress calculated by summing unemployment and inflation rates.

• Correlation: These measurements typically show high correlation with other economic indicators, yet they have nuanced differences that can suggest varying economic conditions or perspectives.