Gross National Product & Gross Domestic Product Economics Breedlove

Economic Indicators Unemployment Rate Inflation Rate Gross Domestic Product (GDP) or Gross National Product (GNP)

Gross Domestic Product – The sum total of the value of all goods and services produced within a country in a given year. C + I + G + (x-m) = GDP C = consumption expenditures I = investments G = government spending (x-m) = exports - imports Gross Domestic Product

Businesses “C” Product Market Households Banks Government Foreign Markets “I” “G” “(X-M)”

Gross National Product – The sum total of the value of all goods and services produced by residents of a country in a given year, including earnings on overseas investments and excluding foreign earnings on investments in this country. So… GDP is income generated within a country’s borders, and… GNP measures income generated by a country’s companies anywhere in the world. A Honda made in Ohio would count as ….. ? A Ford made in Mexico would count as …. ? Gross National Product

GDP vs. GNP Comparing the two measurement of economic growth – which would be more accurate representation of the actual amount of production activity for a country? “Real” or Constant dollar GDP – the value of the goods and services that figure into GDP adjusted for price changes since the base period (inflation).

Shortcomings of GDP 1.GDP is a measure of an economy’s output in a given time. It is not a measure of economic or social well being. 2.GDP does not take environmental factors into account. 3.GDP does no take into account differences in the distribution of income. 4.GDP does not take into account the items that a country would rather not produce 5.GDP misses nonmarket transactions like barter or “underground” activities.

Competing theories… Demand-side Economics – the approach to macro economic problems that focuses on the importance of increasing the households’ disposable income to trigger increased demand. John Maynard Keynes – believed that the key to any economic growth was stimulating consumption, investment and government spending. Increased spending can make up for lack of full employment or production. “Priming the Pump” Roosevelt’s New Deal of the 1930s was an example.

Competing theories… Supply–side Economics – the approach to macro economic problems that focuses on the importance of increasing the supply of goods and services. Say’s Law – the theory (developed in the 19 th century) that when product are produced enough income is created to purchase what has been produced. This naturally eliminates overproduction which can cause prices to fall and the economy to stall. “Supply creates it’s own Demand” Reagan implemented these policies to fight Stagflation of the 1970s. “Trickle- down Economics”