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Questions and Answers
What is the fundamental difference between GDP and GNP?
What is the fundamental difference between GDP and GNP?
What is the formula for calculating the expenditures approach to GDP?
What is the formula for calculating the expenditures approach to GDP?
What is the difference between real GDP and nominal GDP?
What is the difference between real GDP and nominal GDP?
If a country's GDP is $100 billion and its NNP is $90 billion, what is its depreciation?
If a country's GDP is $100 billion and its NNP is $90 billion, what is its depreciation?
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What is the purpose of the GDP deflator?
What is the purpose of the GDP deflator?
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Study Notes
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
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Description
Test your understanding of national income accounting concepts such as GDP, GNP, NNP, NI, PI, DPI, and GDP Deflator. Learn to distinguish between Real and Nominal GDP and how they relate to a country's wellbeing. Numerical examples and formulae like Y=C+I+G+NX will help you master the subject.
