The Gross National Product is the total cash value of all final goods and services sold on the open market in a given period. The period is usually a year, but we hear of the ups and downs in the U.S. GNP every month. The GDP or Gross Domestic Product is almost the same thing, but takes into account the fact that some companies in the US are at least partly owned by people in other countries and that some companies in other countries are at least partly owned by people from the U.S. Thus, the income made here by foreigners is substracted from the Gross National Product and the income made by U.S. citizens overseas is added to it to come up with the Gross Domestic Product.
In order to prevent stuff from being counted more than once, the value of goods and services is determined at the end of the chain of production. Thus, you count the price of a new car when it's sold, but not the price of the steel that goes into the car.
Services are counted as well as goods: dental charges, lawyer bills, the salaries of people who are waiters or housecleaners or whatever.
There are three ways to arrive at the GNP/GDP. I don't know which the government uses. In theory all three ways should come up with a similar figure, but they don't always. The first way is called the expenditure approach which is a sum of the estimates of all the money spent on goods and services by households (consumptin) businesses (investments), government (government purchases) and by people outside the country (net exports). The second way of calculating the GNP/GDP is called the income approach. In this, estimates of kinds of earnings, including total wages and salaries, profits, rental incomes and interest incomes are added up and depreciation is subtracted. In the output or product approach the GNP is a sum of all output of all individuals and organizations producing goods and services with costs for raw materials and depreciation subtracted.
The GNP/GDP is used to measure economic growth, for planning purposes and as an historical recotd. The GNP/GDP is an estimate.
Some things to be aware of when looking at the GNP/GDP:
It is only an undifferentiated summing of products and services.
-- It assumes that every monetary transaction is positive. That is, for instance, if there was a big flu epidemic and people needed a lot more medicine, the production of that medicine would show up as a positive in the GDP even though it had to be produced for something negative happening in the society.
-- It includes stuff that HAS to be paid for, like government services you are taxed for. These prices are not set on the free market.
-- It does NOT include stuff or services sold on any kind of black market, under-the-counter, or without any record, or goods and services that are called "demerit goods" like illegal gambling, drugs and prostitution.
-- It doesn't consider, for instance, the value of home production like people caring for their own kids, home repairs people do themselves, or housekeeping. It doesn't take into account volunteer labor or donations or production. Estimates of this hidden economy range from amounts equal to 5% to 30% of the GDP.
--It doesn't necessarily adequately taking into account inflation or other changes in currency.
-- It is not a good measure of either overall economic welfare or the well-being of individual citizens.
Groups with social and environmental concerns have, in addition to the above, pointed out quite accurately
-- that crime, divorce and natural disasters are treated as economic gain because the transactions needed to deal with them are included in the GDP.
--that damage to the environment can end up as pluses in the GDP: for instance, superfund cleanup of toxic sites, oil spill cleanups, and repair of environmental degradation.
-- In no way reflects the fact that real income for most people has gone down in the past thirty years while the GDP has risen over 50%.
-- That depletion of natural resources and damage caused to the environment by production is not held as an expense against the GDP the way business depreciation, for instance, is.
--That it may encourage the production of stuff that wears out -- so you can increase your market by consumer need to replace things often: planned obsolescence which I learned in my eighth grade trip to Washington was considered a perfectly respectable way to keep the economy going. I suppose changing fashions and endless new gadgets and having people believe new is better does the same thing.
-
