GDP/GNP

Measuring the Economy

Two Measurements

GDP GNP

Gross Domestic Product Dollar value of all G/S

produced within a countries borders in a given year.

Foreign producers in US?

US companies oversees?

Gross National Product Dollar value of all G/S

produced by citizens of a country during a given year.

Foreign producers in the US?

US companies oversees?

Two Calculations

Sales Salaries

Add together the receipts for all recorded transactions Black market Barter Inflation Variety

Add together the salaries of all income earned Under the table Efficiency Double counting Distribution

What GDP does NOT tell us! Non-market Activities

Some people do activities for themselves that others pay for Oil changes/lawn care

Quality of Life Production might be predicated on over-worked employees

Medical internists

Distribution of Wealth There may be a few uber-rich people and many incredibly

poor Loss of US middle class

Inflation Values may rise without increasing production

2 Turtle Doves/automobiles

More on the limitations of GDP Underground Activity

Illegal activities do not get recorded by governments Drug sale/prostitution

Per Capita Income Some countries have huge populations while

others do not US average is just under $50,000

Variety of Goods Economies can be narrowly focused

Oil production

Negative Externality Production can result in pollution

Cuyahoga River fire

Question B: Is GDP/GNP a good measure of an economy? How does knowing the statistic’s shortcomings help in evaluating an economy? Give an example of a country who’s GDP/GNP does not accurately measure the economy. State the limitation from the chart in your notes.