'Real GNP inevitably remains the most commonly used measure of economic activity. Although far from ideal, it is the best measure we have' Explain and discuss.
'Real GNP inevitably remains the most commonly used measure of economic activity. Although far from ideal, it is the best measure we have' Explain and discuss.
Gross National Product is a basic measure of national economic health. Governments and businesses use it to make important decisions. GNP is defined to be the total value of all final goods and services produced in an economy in a year.
GNP is a measure of one thing- market economic activity, however it can be interpreted in different ways and used for different purposes.
GNP is a measure of production; if a can of beans is bought for £1, it enters the GNP, and it is in indication that the economy has produced an extra £1 of output.
GNP is also a measure of the additional value that our efforts have produced. An example is in the production of a loaf of bread. There are many people involved such as the farmer, miller, baker etc. Each adds value to the raw material that they started with. The total for GNP also includes the total amount of value added that has been produced, at all stages of production, in the economy in a year.
Finally GNP is a comprehensive measure of national income. £1 spent on a loaf of bread will be entirely spent on providing income for the farmer, miller and baker. Every pound of spending is translated into a pound of wages, rent or profits. There is nothing left over.
The biggest problem when using GNP is that to make any relevant worthy comparison you have to compare like units with like. When comparing GNP over years for the same country they can be expressed as a normal figure of pounds. This is of no use as in different years the pound would have had different purchasing power.
Gross National Product is a basic measure of national economic health. Governments and businesses use it to make important decisions. GNP is defined to be the total value of all final goods and services produced in an economy in a year.
GNP is a measure of one thing- market economic activity, however it can be interpreted in different ways and used for different purposes.
GNP is a measure of production; if a can of beans is bought for £1, it enters the GNP, and it is in indication that the economy has produced an extra £1 of output.
GNP is also a measure of the additional value that our efforts have produced. An example is in the production of a loaf of bread. There are many people involved such as the farmer, miller, baker etc. Each adds value to the raw material that they started with. The total for GNP also includes the total amount of value added that has been produced, at all stages of production, in the economy in a year.
Finally GNP is a comprehensive measure of national income. £1 spent on a loaf of bread will be entirely spent on providing income for the farmer, miller and baker. Every pound of spending is translated into a pound of wages, rent or profits. There is nothing left over.
The biggest problem when using GNP is that to make any relevant worthy comparison you have to compare like units with like. When comparing GNP over years for the same country they can be expressed as a normal figure of pounds. This is of no use as in different years the pound would have had different purchasing power.
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The author mentions limitations that GNP has, but doesn't do enough to explain how these disadvantages can be taken care of. There are many measures of standard of living. There is also no distinction made between GDP and GNP. The author should also mention comparisons between different economies. For instance, GNP on its own has limitations in comparison with other nations because population and inequalities aren't taken account for.
