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Gdp & Gnp

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GDP & GNP
Gross Domestic Product (GDP) – is one of the primary indicators to measure the wealth of a country * the value of final goods produced or total income earned by domestically-located factors of production (land, labor, capital) regardless of nationality

2 TYPES OF GDP 1. Nominal GDP – measure of GDP with current prices 2. Real GDP - measure of GDP that put into account inflation
HOW TO MEASURE GDP? 1. The Expenditure Approach - is based on expenditures incurred in a given period by institutional units that are resident in the economy

GDP=C+I+G+(X-M)
WHERE:
C – household consumption
I - investments
G – government spending
X = exports
M = imports

If (X - M) is positive, then X > M resulting in a trade surplus
If (X - M) is negative, then X < M resulting in a trade deficit
If (X - M) is zero, then X=M results in a trade balance
Example
Personal Consumption | 3,657 | Depreciation | 400 | Wages | 3,254 | Indirect Business Taxes | 500 | Interest | 530 | Domestic Investment | 741 | Government Expenditures | 1,098 | Rental Income | 17 | Corporate Profits | 341 | Exports | 673 | Net Foreign Factor Income | 20 | Proprietor’s Income | 403 | Imports | 704 |

GDP= C + I + G + (X-M) Y = 3,657 + 741 + 1,098 + (673 – 704) Y = 3,657 + 741 + 1,098 – 31 Y = 5,465 2. Income Approach - is based on sum of income of those institutional units who are directly involved in production of goods and services in a given period

GDP = NI + IBT + CCA + NFP

Where:
NI = National Income
IBT = Indirect Business Taxes
CCA = Capital Consumption Allowance & Depreciation
NFP = Net Factor Payments to the rest of the world
National Income = Compensation to Employees (Wages) + Rents + Interest + Proprietor’s Income + Corporate Profits
USE THE TABLE GIVEN ABOVE:
National Income = 3,254

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