Chapter 5: Problem 2

What is the difference between GDP and each of the following? a. Gross national product b. Net national product c. National income d. Personal income c. Disposable personal income

Short Answer

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In summary, GDP (Gross Domestic Product) is the total value of goods and services produced within a country's borders over a given time period. The differences between GDP and other economic variables are as follows: a. Gross National Product (GNP) includes income earned by citizens outside the country, while GDP only includes income earned within the country's borders. b. Net National Product (NNP) accounts for the depreciation of a country's capital stock, while GDP does not. c. National Income represents the actual income available to a country, while GDP only measures the value of production. d. Personal Income is the sum of all incomes received by individuals in a country, whereas GDP measures the value of goods and services produced. e. Disposable Personal Income (DPI) measures the income available to individuals for spending, saving, or investing, while GDP measures the total output of an economy.

Step by step solution

1. GDP Definition

GDP (Gross Domestic Product) is the total value of goods and services produced within a country's borders over a given time period, usually a year. It counts all outputs produced by people, including citizens and foreigners, working within the country. Now let's see the differences between GDP and other economic variables.

a. Difference between GDP and Gross National Product (GNP)

GNP (Gross National Product) is the total value of goods and services produced by a country's residents both domestically and abroad over a given time period, usually a year. The key difference between GDP and GNP is that GNP considers the income earned by citizens outside of the country, while GDP only measures the income earned within the country's borders.

b. Difference between GDP and Net National Product (NNP)

NNP (Net National Product) is the Gross National Product adjusted for depreciation, which is the wear and tear of fixed assets, like machinery, equipment, and infrastructure. The primary difference between GDP and NNP is that NNP accounts for the depreciation of a country's capital stock, whereas GDP does not.

c. Difference between GDP and National Income

National Income is the net output of an economy after deducting consumption of fixed capital (depreciation) and adding net factor income earned from abroad. In general, National Income = NNP - Taxes + Transfers. The key difference between GDP and National Income is that National Income represents the actual income available to a country, whereas GDP only measures the value of production.

d. Difference between GDP and Personal Income

Personal Income is the sum of all incomes received by individuals in a country, whether it is earned through work, investments, or transfers from the government or other entities. Personal Income is a measure of the income received by individuals, while GDP focuses on the value of goods and services produced in a country.

e. Difference between GDP and Disposable Personal Income

Disposable Personal Income (DPI) is the amount of money that individuals have left after paying income taxes and receiving government transfers. DPI represents the actual amount of income households can use for consumption, saving, or investment. The primary difference between GDP and DPI is that GDP measures the total output of an economy, whereas DPI measures the income available to individuals for spending, saving, or investing.

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