GDP: An important and versatile concept
GDP measures:
total income
total output
total expenditure
the sum of value added at all stages
in the production of final goods
GNP vs. GDP
Gross national product (GNP):
Total income earned by the nation’s factors of production, regardless of where located
Gross domestic product (GDP):
Total income earned by domestically-located factors of production, regardless of nationality
GNP – GDP = factor payments from abroad
minus factor payments to abroad
Examples of factor payments: wages, profits, rent, interest & dividends on assets
Real vs. nominal GDP
GDP is the value of all final goods and services produced.
, Nominal GDP measures these values using current prices.
Real GDP measure these values using the prices of a base year.
Calculating Real and Nominal GDP: A Simple Example
2010 2011 2012
P Q P Q P Q
good A £30 900 £31 1,000 £36 1,050
good B £100 192 £102 200 £100 205
Compute nominal GDP in each year.
Compute real GDP in each year using 2010 as the base year.
GDP measures:
total income
total output
total expenditure
the sum of value added at all stages
in the production of final goods
GNP vs. GDP
Gross national product (GNP):
Total income earned by the nation’s factors of production, regardless of where located
Gross domestic product (GDP):
Total income earned by domestically-located factors of production, regardless of nationality
GNP – GDP = factor payments from abroad
minus factor payments to abroad
Examples of factor payments: wages, profits, rent, interest & dividends on assets
Real vs. nominal GDP
GDP is the value of all final goods and services produced.
, Nominal GDP measures these values using current prices.
Real GDP measure these values using the prices of a base year.
Calculating Real and Nominal GDP: A Simple Example
2010 2011 2012
P Q P Q P Q
good A £30 900 £31 1,000 £36 1,050
good B £100 192 £102 200 £100 205
Compute nominal GDP in each year.
Compute real GDP in each year using 2010 as the base year.
