Difference between GDP and GNP ? (five points needed)
Answers
Answer:
GDP, or gross domestic product, measures the total economic value of all final goods and services produced within a country’s borders during a specific period of time. An expression of an economy’s relative health—an increase in GDP indicates a country’s economy is growing and a decrease that it is shrinking—GDP is used by economic policymakers, in the United States, and across the world, to determine interest rates and other economic policy.
There are two types of GDP:
Nominal GDP is a country’s economic output at current total market value, meaning that it is often shaped as much by currency inflation as it is by increased economic output.
Real GDP is a country’s output adjusted for inflation. By comparing the year under study to a base year and keeping prices consistent across both, economists isolate and then remove inflation from the equation, providing a more accurate picture of a nation’s actual increases or decreases in economic output.
How Is GDP Calculated?
GDP is calculated in one of two ways: the income approach, and the expenditure approach. Though the latter is by far the more popular way to measure GDP, both methods should arrive at roughly the same number.
In the income approach, also known as GDP(I), economists add employee compensation, gross profits, and taxes minus subsidies to arrive at a figure representing the income an economy generates.
In the expenditure approach, economists add total consumption, investment, government spending, and net exports.
GDP provides us with a portrait of an economy’s well being, meaning that when GDP is up, the economy is healthy with high employment rates, wage increases, and a rising stock market. For this reason, investors often pay attention to GDP increases or decreases when crafting their investment strategies.