Measuring a Nation's Income: GDP and Beyond

Measuring a Nation's Income

GDP vs GNP

• GDP (Gross Domestic Product) measures the total value of goods and services produced within a country's borders
• GNP (Gross National Product) measures the total value of goods and services produced by a country's citizens, regardless of where they are produced

The Expenditure Approach

• Y (GDP) = C (Consumption) + I (Investment) + G (Government Spending) + NX (Net Exports)
• This equation represents the different ways in which a country's income can be spent

Real GDP vs Nominal GDP

• Nominal GDP measures the value of goods and services at current prices
• Real GDP measures the value of goods and services at constant prices, adjusted for inflation
• Real GDP is a more accurate measure of a country's economic growth

Numerical Examples

• If a country's nominal GDP is $100 billion and the inflation rate is 10%, its real GDP would be approximately $90 billion

GDP and Wellbeing

• GDP does not capture non-monetary values, such as leisure time, environmental quality, and income inequality
• GDP is limited in its ability to measure a country's overall wellbeing

National Income Accounts

• NNP (Net National Product) is the total value of goods and services produced by a country's citizens, minus the depreciation of capital
• NI (National Income) is the total income earned by a country's citizens, including profits and rents
• PI (Personal Income) is the total income earned by individuals, including wages and transfers
• DPI (Disposable Personal Income) is the total income available for individuals to spend or save

GDP Deflator

• The GDP deflator is a measure of the overall price level of a country's output
• It is used to adjust nominal GDP to real GDP, and to calculate the inflation rate