NATIONAL INCOME AND PRODUCT

GROSS NATIONAL PRODUCT - THE VALUE OF THE TOTAL AMOUNT OF FINAL GOODS & SERVICES PRODUCED BY THE ECONOMY DURING A PERIOD OF TIME.

FIRST PUBLISHED IN 1934

A. TO ELIMINATE DOUBLE COUNTING ONLY FINAL GOODS AND SERVICES ARE COUNTED. INTERMEDIATE GOODS (FLOUR TO MAKE BREAD) ARE NOT COUNTED.

B. THE VALUE OF THE FINAL GOODS AND SERVICES ARE PEGGED AT COST.

C. NONMARKET GOODS AND SERVICES ARE NOT INCLUDED (HOMEMAKER).

D. NONPRODUCTIVE TRANSACTIONS - STOCK PURCHASE FOR EXAMPLE , ARE NOT INCLUDED.

A. ALSO GOVERNMENT TRANSFER PAYMENTS

B. ALSO PRIVATE TRANSFER PAYMENTS - GIFTS

E. SECONDHAND GOODS ARE EXCLUDED

GROSS NATIONAL PRODUCT CAN BE MEASURED IN TWO WAYS

A. CURRENT DOLLARS - ACTUAL DOLLAR AMOUNTS

B. CONSTANT DOLLARS - ACTUAL DOLLARS ADJUSTED FOR INFLATION

CONSTANT DOLLARS ARE DERIVED FROM CHOOSING A BASE YEAR AND ADJUSTING THE VALUE OF THE DOLLAR TO THE BASE YEAR

WHEN AN ECONOMIST REFERS TO REAL GNP HE/SHE REFERS TO INFLATION ADJUSTED GNP

VALUE ADDED - THE AMOUNT OF VALUE ADDED BY A FIRM OR INDUSTRY TO THE TOTAL WORTH OF THE PRODUCT

MANY PRODUCTS HAVE VALUE ADDED ALONG THE PROCESS OF MANUFACTURING THAT ADD VALUE TO THE PRODUCT - THE GLASS FACTORY PRODUCES THE WINDSHIELD TO YOUR CAR.

NET NATIONAL PRODUCT - ONE MAJOR DRAWBACK OF GNP IS THAT IT DOES NOT TAKE INTO ACCOUNT THE FACT THAT PLANT AND EQUIPMENT WEAR OUT WITH USE, AND THAT A CERTAIN AMOUNT OF EACH YEAR'S NATIONAL OUTPUT MUST BE DEVOTED TO REPLACING THE CAPITAL GOODS WORN OUT IN PRODUCING THE YEAR'S OUTPUT. NET NATIONAL PRODUCT TAKES DEPRECIATION INTO ACCOUNT.

LIMITATIONS OF GNP AND NNP

A. THE SIZE OF THE POPULATION OF A COUNTRY HAS TO BE TAKEN INTO ACCOUNT.

B. LEISURE IS NOT COUNTED

C. QUALITY CHANGES ARE NOT COUNTED.

D. THE VALUE OF THE GOODS (SOCIAL DESIRABILITY) IS NOT COUNTED

AND THE DISTRIBUTION IS NOT COUNTED ( ARE 10% OF THE POPULATION RECEIVING 90% OF THE GOODS AND SERVICES)

E. THE SOCIAL COSTS ARE NOT COUNTED - POLLUTION

***THERE ARE TWO APPROACHES TO GNP - MEASURING EXPENDITURES & MEASURING INCOME

EXPENDITURE APPROACH

A. PERSONAL CONSUMPTION - SPENDING BY HOUSEHOLDS - ( IN THE U.S. 2/3 OF THE FINAL TOTAL ON FINAL GOODS AND SERVICES.

B. GROSS PRIVATE DOMESTIC INVESTMENT -

1. ALL FINAL PURCHASES OF TOOLS, EQUIPMENT AND MACHINERY

2. ALL CONSTRUCTION EXPENDITURES

3. CHANGE IN TOTAL INVENTORIES

** NET PRIVATE DOMESTIC INVESTMENT INDICATES THE CHANGE IN THE NATION'S STOCK OF CAPITAL GOODS. IF IT IS POSITIVE, THE NATION'S PRODUCTIVE CAPACITY IS GROWING. IF IT IS NEGATIVE THE NATION'S PRODUCTIVE CAPACITY IS SHRINKING.

C. GOVERNMENT PURCHASES OF GOODS AND SERVICES.

D. NET EXPORTS

GNP = A+B+C+D

INCOME APPROACH

A. COMPENSATION OF EMPLOYEES - LARGEST CATEGORY

B. RENTS

C. INTEREST

D. PROPRIETOR'S INCOME - NET INCOME OF UNINCORPORATED BUSINESSES

E. CORPORATE PROFITS

F. DEPRECIATION - VALUE OF CAPITAL CONSUMED

G. INDIRECT BUSINESS TAXES - SALES TAXES, CUSTOM DUTIES ETC.