Gross Domestic Product and Gross National Product

GDP

Gross domestic product is the measure of the total market value of a nation's income. It is a gauge about the current economic output of a nation. The higher the GDP the better off its citizens are expressed in per capita income or the GDP divided by the total population. An entire economy produces a lot of goods that can also be used to make another so measuring a nations income requires identifying the final good. A final good is something produced but cannot be resold cannot be used as an ingredient or material for another product. For example the basic farmer-miller-baker scenario in which a farmer sells wheat to a miller in which it is turned into flour. The miller sells the flour to a baker which is used to bake our final product pepperoni pizza! If a nation's income is measured this way, there would be a double count since a Euro spent is also a Euro received. Every Dollar spent is an income to someone. Counting the income of the baker with the miller's income from the flour is considered double counting because that flour as an ingredient is already included in the cost of making our pepperoni pizza. The final product is used to measure GDP in order to avoid that error.

Nominal GDP

This is the value of the nation's final goods and services in a given time period. Products produced by foreign corporations operating within the borders of the nation is also counted. For example, Honda motor corp. is a Japanese based company with plants in the United States the cars they produced and sold in the US is included in the GDP of the USA. Although that income made by Honda
motor in the USA is also counted as GNP in Japan where the company is based.

Gross National Product

GNP is the total value of final goods and services produced by firms or citizens of a nation locally and from overseas. In the case for Honda since it is a Japanese owned firm, the sales made from the United States is considered investments from overseas therefore counting as part of GNP for Japan. GNP is calculated as
GNP=GDP + overseas investments by local firms
- overseas expenses by local firms

GDP

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