2. Presented By:
Md. Shaifullar Rabbi
BBA & MBA (Major in THM,FBS,DU)
Coordinator & Lecturer
Dept. of Tourism & Hospitality Management
Daffodil Institute of IT(NU)
3. GROSS NATIONAL PRODUCT (GNP)
Gross national product (GNP) is an estimate of total
value of all the final products and services turned out
in a given period by the means of production owned
by a country's residents. GNP is commonly calculated
by taking the sum of personal consumption
expenditures, private domestic investment,
government expenditure, net exports and any income
earned by residents from overseas investments,
minus income earned within the domestic economy
by foreign residents. Net exports represent the
difference between what a country exports minus any
imports of goods and services.
4. HOW TO CALCULATE GNP?
Gross national product (GNP) is a broad measure of a nation's total economic activity.
GNP is the value of all finished goods and services produced in a country in
one year by its nationals. GNP includes income earned by citizens and companies
abroad, but does not include income earned by foreigners within the country.
The formula for GNP is:
Consumption + Government Expenditures + Investments + Exports + Foreign
Production by Bangladeshi Companies– Domestic Production by Foreign Companies =
Gross National Product
GNP can be adjusted to make valid comparisons year-to-year or among countries. For
year-to-year comparisons, GNP needs to be adjusted for inflation. For country-to-
country comparisons, GNP needs to be stated on a per capita basis (i.e. GNP divided
by the population of the country).
5. GNP FORMULA
The formula to calculate the components of GNP is
Y = C + I + G + X + Z.
That stands for GNP = Consumption + Investment +
Government + X (net exports, or imports minus exports)
+ Z (net income earned by domestic residents from
overseas investments - net income earned by foreign
residents from domestic investments.)
6. GROSS DOMESTIC PRODUCT
Gross domestic product (GDP) is the total value of output produced in a
given time period. GDP includes the output of foreign owned businesses
that are located in a nation following foreign direct investment. For
example, the output produced at the Nissan car plant on Tyne and
Wear contributes to the UK’s GDP
Gross Domestic Product (GDP) is a broad measurement of a nation’s
overall economic activity. GDP is the monetary value of all the finished
goods and services produced within a country's borders in a specific time
period.
GDP includes all private and public consumption, government outlays,
investments, additions to private inventories, paid-in construction costs
and the foreign balance of trade (exports are added, imports are
subtracted).
7.
8. HOW TO MEASURE GDP?
Expenditure Approach
The expenditure approach attempts to calculate GDP by evaluating the sum of all final good and services purchased in an
economy. The components of U.S. GDP identified as “Y” in equation form, include Consumption (C), Investment (I),
Government Spending (G) and Net Exports (X – M).
Y = C + I + G + (X − M) is the standard equation (expenditure) representation of GDP
.
“C” (consumption) is normally the largest GDP component in the economy, consisting of private expenditures (household
final consumption expenditure) in the economy. Personal expenditures fall under one of the following categories: durable
goods, non-durable goods, and services.
“I” (investment) includes, for instance, business investment in equipment, but does not include exchanges of existing assets.
Spending by households (not government) on new houses is also included in Investment. “Investment” in GDP does not
mean purchases of financial products. It is important to note that buying financial products is classed as ‘saving,’ as opposed
to investment.
“G” (government spending ) is the sum of government expenditures on final goods and services. It includes salaries of
public servants, purchase of weapons for the military, and any investment expenditure by a government. However, since
GDP is a measure of productivity, transfer payments made by the government are not counted because these payments do
not reflect a purchase by the government, rather a movement of income. They are captured in “C” when the payments are
spent.
“X” (exports) represents gross exports. GDP captures the amount a country produces, including goods and services
produced for other nations’ consumption, therefore exports are added.
“M” (imports) represents gross imports. Imports are subtracted since imported goods will be included in the terms “G”, “I”,
or “C”, and must be deducted to avoid counting foreign supply as domestic.
9. INCOME APPROACH
The income approach looks at the final income in the country, these include the
following categories taken from the U.S. “National Income and Expenditure Accounts”:
wages, salaries, and supplementary labor income; corporate profits interest and
miscellaneous investment income; farmers’ income; and income from non-farm
unincorporated businesses. Two non-income adjustments are made to the sum of these
categories to arrive at GDP:
Indirect taxes minus subsidies are added to get from factor cost to market prices.
Depreciation (or Capital Consumption Allowance) is added to get from net domestic
product to gross domestic product.
Key Points
GDP can be measured using the expenditure approach: Y = C + I + G + (X – M).
GDP can be determined by summing up national income and adjusting for
depreciation, taxes, and subsidies.
10. BASIS FOR COMPARISON GDP GNP
Meaning The worth of goods and services
produced within the geographical
limits of the country is known as
Gross Domestic Product (GDP).
The worth of goods and services
produced by the country's citizens
irrespective of the geographical
location is known as Gross National
Product (GNP).
What is it? Production of products within the
country's boundary.
Production of products by the
enterprises owned by the residents of
the country.
Basis Location Citizenship
Calculation Y = C + I + G + (X − M) Y = C + I + G + X + Z
On which scale productivity is
measured?
On a local scale On international scale
Focus on Domestic production Production by nationals
Outlines The strength of the country's
domestic economy.
How the residents are contributing
towards the country's economy.
11. NET NATIONAL PRODUCT
Net national product (NNP) refers to gross national
product (GNP), i.e. the total market value of all
final goods and services produced by the factors of
production of a country or other polity during a given
time period, minus depreciation. Similarly, net domestic
product (NDP) corresponds to gross domestic product
(GDP) minus depreciation. Depreciation describes the
devaluation of fixed capital through wear and tear
associated with its use in productive activities.
12. NATIONAL INCOME
National income is the total value a country’s final output of all new goods
and services produced in one year. Understanding how national income is
created is the starting point for macroeconomics.
National income measures the monetary value of the flow of output of
goods and services produced in an economy over a period of time.
Measuring the level and rate of growth of national income (Y) is important
for keeping track of:
1. The rate of economic growth
2. Changes to living standards
3. Changes to the distribution of income between groups within the
population
13. THE NATIONAL INCOME IDENTITY
This relationship is expressed in the national
income identity, where the amount received as
national income is identical to the amount
spent as national expenditure, which is also
identical to what is produced as
national output. Throughout macroeconomics
the terms income, output and expenditure are
interchangeable.
14. THE CIRCULAR FLOW OF INCOME
National income, output, and expenditure are generated by the activities of the two
most vital parts of an economy, its households and firms, as they engage in mutually
beneficial exchange.
Households: The primary economic function of households is to supply domestic firms
with needed factors of production - land, human capital, real capital and enterprise.
The factors are supplied by factor owners in return for a reward. Land is supplied by
landowners, human capital by labor, real capital by capital owners (capitalists) and
enterprise is provided by entrepreneurs.
Firms: The function of firms is to supply private goods and services to domestic
households and firms, and to households and firms abroad. To do this they use factors
and pay for their services.
Factor incomes: Factors of production earn an income which contributes to national
income. Land receives rent, human capital receives a wage, real capital receives a rate
of return, and enterprise receives a profit.
15. Production function: The simple production function states that output (Q) is a
function (f) of: (is determined by) the factor inputs, land (L), labour (La), and
capital (K), i.e.Q = f (L, La, K)
National income accounts: Since the 1940s, the UK government has gathered
detailed records of national income, though the collection of basic data goes
back to the 17th Century. The published national income accounts for the UK,
called the ‘Blue Book’, measure all the economic activities that ‘add value’ to the
economy.
Adding value: National output, income and expenditure, are generated when
there is an exchange involving a monetary transaction. However, for an
individual economic transaction to be included in aggregate national income it
must involve the purchase of newly produced goods or services. In other words,
it must create a genuine addition to the ‘value’ of the scarce resources.
The creation of national income: The simplest way to think about national
income is to consider what happens when one product is manufactured and
sold. Typically, goods are produced in a number of 'stages', where raw materials
are converted by firms at one stage, then sold to firms at the next stage.
Final output: In accounting terms, only the value of final output is recorded. To
16. METHODS OF MEASURING NATIONAL INCOME
Output: The output approach focuses on finding the total output of a nation by directly
finding the total value of all goods and services a nation produces. Because of the
complication of the multiple stages in the production of a good or service, only the
final value of a good or service is included in the total output.
Their sum gives an alternative way of calculating the value of final output.
Key formulae are:
GDP(gross domestic product) at market price = value of output in an economy in the
particular year minus intermediate consumption
GDP at factor cost = GDP at market price minus depreciation plus NFIA (net factor
income from abroad) minus net indirect taxes(GNP)
NDP at factor cost = Compensation of employees plus net interest plus rental & royalty
income plus profit of incorporated and unincorporated NDP at factor cost
17. EXPENDITURE
The expenditure approach is basically an output accounting method. It
focuses on finding the total output of a nation by finding the total amount
of money spent. This is acceptable to economists, because, like income,
the total value of all goods is equal to the total amount of money spent on
goods. The basic formula for domestic output takes all the different areas
in which money is spent within the region, and then combines them to
find the total output.
where:
C = household consumption expenditures / personal consumption
expenditures
I = gross private domestic investment
G = government consumption and gross investment expenditures
X = gross exports of goods and services
M = gross imports of goods and services
18. NATIONAL INCOME AND WELFARE
GDP per capita (per person) is often used as a measure of a person's welfare. Countries with higher GDP
may be more likely to also score high on other measures of welfare, such as life expectancy.
Measures of GDP typically exclude unpaid economic activity, most importantly domestic work such as
childcare. This leads to distortions; for example, a paid nanny's income contributes to GDP
, but an unpaid
parent's time spent caring for children will not, even though they are both carrying out the same
economic activity.
GDP takes no account of the inputs used to produce the output. For example, if everyone worked for
twice the number of hours, then GDP might roughly double, but this does not necessarily mean that
workers are better off as they would have less leisure time. Similarly, the impact of economic activity on
the environment is not measured in calculating GDP
.
Comparison of GDP from one country to another may be distorted by movements in exchange rates.
Measuring national income at purchasing power parity may overcome this problem at the risk of
overvaluing basic goods and services, for example subsistence farming.
GDP does not measure factors that affect quality of life, such as the quality of the environment (as
distinct from the input value) and security from crime. This leads to distortions - for example, spending
on cleaning up an oil spill is included in GDP
, but the negative impact of the spill on well-being (e.g. loss
of clean beaches) is not measured.
GDP is the mean (average) wealth rather than median (middle-point) wealth. Countries with a skewed
income distribution may have a relatively high per-capita GDP while the majority of its citizens have a
relatively low level of income, due to concentration of wealth in the hands of a small fraction of the
population. See Gini coefficient.
19. REAL NATIONAL INCOME
Real national income is nominal or money
national income (output) adjusted for inflation.
It is also national income at 'at constant prices.
The most frequently used measure of national
income is Gross Domestic Product (GDP).
