Download GDP vs GNP

GNP & CONSUMER PRICE
INDEX (CPI)
PROBLEM WITH GDP

GDP can measure total output but cannot
measure total income


mainly because of goods produced here by
foreigners being counted and goods
produced abroad by Americans that are not
counted
Money that Ford makes in Mexico still
makes its way back to stocks and
executive pay checks
Gross National Product (GNP)
The dollar value of all final goods and
services produced in one year with labor
and property supplied by US residents
 Takes into consideration imports and
exports

HOW TO CALCULATE GNP

Start with the GDP and…
add in all payments Americans receive from
outside the US
 subtract all payment made to foreign-owned
resources in the US


Economists prefer GDP because it
focuses on production within United
States borders
PRICE INDICES
Examine the chart on page 342
 Compare it to the chart on page 351
 If the total production is the same,
why has the total GDP increased by
$900 billion?

PRICE INDEX




A major problem with GDP is it is subject to
distortions because of inflation
Inflation is a rise in the general price level
The problem comes when you attempt to
compare GDP levels from one year to the next
as in charts 13.1 and 13.4
GDP can increase from one year to the next
with no real increase in the amount of goods
and services produced
PURPOSE OF PRICE INDEX
A price index is used to reduce the
distortions of inflation
 It is a statistical series that can be used to
measure changes in price over time
 We can measure inflation 3 different
ways

CPI-CONSUMER PRICE
INDEX

Start with a market basket


selection of just about everything you
can imagine the average household
might purchase in a year
Compare the total cost of everything
in that group today in comparison to
everything in that basket in the time
period between 1982-1984 (average
cost)
Different Indices



CPI- focuses on consumer goods
(computer monthly)
Producer Price Index- Is computed
monthly and focuses only on purchase of
goods by producers (natural resources
and capital)
Price Deflator- takes into consideration
the inflation of ALL goods and services
and is computed quarterly
REAL vs. NOMINAL GDP
We know that inflation can distort
GDP
 We know how to measure GDP
 If we use this knowledge we can
discover the REAL GDP
 Chart 13.4 is an example of Nominal
GDP because it does not take
inflation into consideration

ADVANTAGE TO REAL GDP

Allows us to measure changes in
production rather than changes in
price
IMPORTANCE FOR GROWTH
1. Improved standard of living
More time with family, hobbies,
etc. and more luxuries to make
life easier
Government Spending- more
money means more taxes which
equals nicer roads, parks, police,
etc.
Domestic Problems- growth equals
more jobs and thus less poverty
and crime

2.
3.
IMPORTANCE FOR GROWTH
4. Helping other Nations- purchasing
of products as well as aid to other
countries helps both the US and
foreign countries
5. Global Role Model- Want
developing nations to see that
capitalism works and promote
market economies over communism
CLOSURE
1.
Read the Business Week article on page
362
a. What impact will immigrants have on
our GDP?
b. Based upon the contributions that
legal and illegal immigrants can
provide, should we or should we not
limit immigration in the United States?
c. Share with a partner
d. Turn-in on your way out the door