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Economics U$A: 21st Century Edition
GNP/GDP (Macroeconomics)
In 1929 following the stock market bottoming out, Simon Kuznets led an investigative study resulting in the first national data collection of Gross National Product (GNP). Able to assess the overall production to consumption ratio of the U.S., Franklin Roosevelt entered World War II without jeopardizing the basic needs of his citizens. Although GNP was changed to GDP (Gross Domestic Product) in 1991, it still didn’t account for all aspects of economic growth. Nonetheless, GDP data measurements help us understand the U.S. economy.
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Unit Overview
Purpose:
To introduce the viewers to GNP and GDP, and other concepts of the National Income accounts, and to show how they help us understand the growth of the U.S. economy over the past century.
Objectives:
- Gross national product (GNP) and gross domestic product (GDP) are the sum of all final transactions in the product markets, in current prices. The difference between GNP and GDP is that GDP looks at production within the U.S., while GNP looks at goods and services produced by U.S. residents wherever those goods and services might be produced.
- GNP and GDP in constant prices represent real GNP/GDP from which the effects of inflationary price changes have been removed.
- GNP and GDP involve only final transactions (eliminating intermediate goods) or, equivalently, values-added (eliminating purchases by firms from other firms).
- In 1991, the Bureau of Economic Analysis, which produces the numbers, changed its primary focus from GNP to GDP.
- GDP is better designed to give information on the state of the business cycle within the United States because it is focused only on activity within the United States.
- Most other countries were already focusing on GDP, so for international comparability, GDP was a better measure.
- The total production of an economy and the total income of the economy represent two different ways of looking at the same thing, as represented in the circular flow.
- In a simplified economy, from the product side, GDP and GNP are composed of consumer goods (C), investment goods (I), and government purchases of goods and services (G).
- In a simplified economy, from the income side, GDP and GNP are composed of before-tax wages and salaries, rents, interest, and profits—or consumption (C), saving (S), and taxes (T).
- The growth of real GDP and GNP per capita over this century has meant vast increases in U.S. living standards. However,
- continued growth is not automatic, but involves continuing development of new products and methods; and
- the growth of GDP/GNP involves important costs, and thus they are imperfect measures of economic well-being.
Meet the Series Experts
Carol Carson
Director of the Statistics Department of the International Monetary Fund, 1996–2004, and earlier Director of the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce. At Commerce, she had also served as Deputy Director, Chief Economist, and Editor-in-Chief of the Survey of Current Business. She also held positions at the Federal Reserve Bank of New York and the National Planning Association, and as expert for the revision of the United Nations System of National Accounts. She has taught economic accounting, most recently at George Washington University. Dr. Carson received her B.A. from the College of Wooster, M.A. from the Fletcher School of Law and Diplomacy, and Ph.D. from George Washington University.
John Kendrick
Chief Economist for the U.S. Department of Commerce, 1976–1977. He came to Washington in 1941 to work for the National Resources Planning Board and, in 1946, joined the Commerce Department’s Bureau of Economic Analysis. One of his earliest assignments was to study how to “deflate” (find the true inflation-adjusted estimates of) the U.S. Gross National Product (GNP), the nation’s total output of goods and services. He was also the U.S. representative for meetings of the European Economic Community in Geneva and the Organization for Economic Co-operation and Development in Paris. Dr. Kendrick received his B.A. and M.A. in Economics from the University of North Carolina and Ph.D. in Economics from George Washington University.
Robert Nathan
Economist and lawyer, renowned for his work during the Depression and World War II and for his ability to explain complex economic theories in plain language. He was among the first economists to apply economic theories directly from within the marketplace rather than from academia. He spent a good part of the Depression gathering unemployment statistics, which gave him a keen insight into the free enterprise system. Heavily involved in U.S. industrial mobilization during World War II, he was appointed Chair of the War Production Board’s planning committee in 1942. After the war, he started a consultancy firm called Robert R. Nathan Associates. Mr. Nathan received his B.A. and M.A. from the Wharton School at the University of Pennsylvania and L.L.B. from Georgetown University.
Nigel Gault
Chief U.S. Economist at IHS Global Insight, responsible for overseeing IHS’s macroeconomic forecasts and analyses of the U.S. economy. His expertise includes short-term and long-term economic outlooks, government economic policies, the Federal Reserve, monetary policy, trade, labor, and consumer-market issues. He has more than 20 years of experience in economic analysis and forecasting. Dr. Gault received his M.A. in Economics from Cambridge University and Ph.D. in Economics from Harvard University.
Gaylord Nelson
Wisconsin Governor, 1959–1963, and U.S. Senator, 1963–1981, specializing in the environment and small business. He traveled on the Conservation Tour with President John F. Kennedy and was the principal founder of Earth Day. While chairman of the Senate Small Business Committee, he led successful efforts to authorize the first modern White House Conference on Small Business, created the system of Small Business Development Centers at U.S. universities, and improved the way that federal agencies regulate small businesses through the Regulatory Flexibility Act. Before he ran for Governor, he served in World War II, practiced law in Wisconsin, and served three terms in the Wisconsin State Senate. Senator Nelson received his B.A. from San Jose State College and J.D. from the University of Wisconsin.
What's your Economics IQ?
Take the Economics USA: GNP/GDP Quiz here.
Quiz Addendum
2. Answer explanation:
Over 16 percent. The rate of inflation = change in the index/original index, or in this case, 20/120, or 16.67%.
Glossary
- circular flow
Cyclical representation describing how households give money to firms, which then provide goods and services for households. - constant prices
Refers to valuation of transactions, wherein the influence of price changes from the base year to the current year has been removed. - consumption
The using-up of goods and services by consumer purchasing or in the production of other goods. - current prices
The value based on prices during the reference year; nominal year. - double-counting
Including the value of intermediate goods more than once in the value of gross domestic product (GDP). - economic growth
A positive change in the level of production of goods and services by a country over a certain period of time. - gross domestic product (GDP)
The value of the total amount of final goods and services produced by the economy during a period of time. Measured either by the expenditure on the final goods and services or by the income generated by the output. - gross national product (GNP)
The value of all the goods and services produced in an economy, plus the value of the goods and services imported, less the goods and services exported. - real
Expressed in constant dollars. - saving
The process by which people give up a claim on present consumption goods in order to receive consumption goods in the future. - taxes
Fees charged by a government on a product, income, or activity.
