Where:
C = Household consumption expenditures / Personal consumption expenditures
I = Gross private domestic investment
G = Government consumption and gross investment expenditures
X = Gross exports of goods and services
M = Gross imports of goods and services
What GDP does not measure ?
- It is impossible to measure positive and negative externalities by GDP
- pollution
- resource use
- The hidden economy. These are all self-employed workers who do not pay taxes
- vegetable : defence
: polices ← ( TOBIN )
- GDP does also not take into account educational level, productivity of the public sector, life expectancy, level of democracy, economic freedom and many other variables
GNP ( Gross National Product ) is defined as the "value of all (final) goods and services produced in a country in one year, plus income earned by its citizens abroad, minus income earned by foreigners in the country"
GNP = GDP + net property income from abroad .
- What is the difference between GNP and GDP
GNP measures the value of goods and services produced by countries nationals, while GDP measures the value of goods and services produced within the boundaries of this country . The key difference between the two is that GDP is the total output of a region.
( in the more simply words GDP measures the whole economy’s national income, GNP measures the citizen’s (of the economy) income, wherever they are. )
- finally , we have Net National Product (NNP). which is GNP minus depreciation of capital.
NNP = GNP – depreciation
Even durable goods age at some point. Their prices fall, as new models appear, making the original technology obsolete , or they simply lose their effectiveness due to the wearing of materials, they are composed from. Another reason for a fall in price, would be a simple change in tastes over time. All this means that if we consider goods only by their original price and not by their current price, we are prone to making mistakes in evaluation of the true national income – that is why we take into account this fall in worth, called depreciation (which basically translates as fall in price). Once GNP has been lowered, thanks to the fact that we considered the actual, current prices of goods, we speak of NNP. As we do not include savings in GDP and GNP, we have to exclude them from our calculations (so when people use their savings to fuel their expenditure, we must subtract the amount they used to get actual income). This is also a part of NNP.
