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.
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
GNP=GDP + overseas investments by
- overseas expenses by local firms