{"id":25,"date":"2020-01-08T20:26:18","date_gmt":"2020-01-08T20:26:18","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/suny-oldwestbury-publicfinanceandpublicpolicy\/chapter\/alternative-ways-to-measure-the-economy\/"},"modified":"2020-01-08T20:26:18","modified_gmt":"2020-01-08T20:26:18","slug":"alternative-ways-to-measure-the-economy","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-oldwestbury-publicfinanceandpublicpolicy\/chapter\/alternative-ways-to-measure-the-economy\/","title":{"raw":"Alternative Ways to Measure the Economy","rendered":"Alternative Ways to Measure the Economy"},"content":{"raw":"\n<div class=\"textbox learning-objectives\">\n<h3>Learning Objectives<\/h3>\n<ul>\n \t<li>Contrast and calculate GDP, GNP, and NNP<\/li>\n<\/ul>\n<\/div>\nBesides GDP, there are several different but closely related ways of measuring the size of the economy. We mentioned above that GDP can be thought of as total production and as total purchases. It can also be thought of as total income since anything produced and sold produces income.\n<h2>Gross National Product<\/h2>\n<section id=\"fs-idp12355168\">\n<p id=\"fs-idm67605408\">One of the closest cousins of GDP is the <strong>gross national product<\/strong> (GNP). GDP includes only what is produced within a country\u2019s borders. GNP adds what is produced by domestic businesses and labor abroad, and subtracts out any payments sent home to other countries by foreign labor and businesses located in the United States. In other words, GNP counts&nbsp;the production of a nation's citizens and firms, whether they are located inside or outside the borders of the nation, while GDP measures&nbsp;all production that happens within the geographic boundaries of a nation. For the United States, the gap between GDP and GNP is relatively small; in recent years, only about 0.2%. For small nations, which may have a substantial share of their population working abroad and sending money back home, the difference can be substantial.<\/p>\n\n<div class=\"textbox tryit\">\n<h3>Try It<\/h3>\nhttps:\/\/assessments.lumenlearning.com\/assessments\/7458\n\n<\/div>\n<h2>Net National Product<\/h2>\n<p id=\"fs-idp32378176\"><strong>Net national product<\/strong> (NNP) is calculated by taking GNP and then subtracting the value of how much physical capital is worn out, or reduced in value because of aging, over the course of a year. The process by which capital ages and loses value is called&nbsp;<strong>depreciation<\/strong>. The NNP can be further subdivided into <strong>national income<\/strong>, which includes all income to businesses and individuals, and <strong>personal income<\/strong>, which includes only income to people.<\/p>\n<p id=\"fs-idp51237184\">To get an idea of how these calculations work, follow the steps in the following feature.<\/p>\n\n<header><header>\n<div class=\"textbox exercises\"><header>\n<h3 class=\"title\">CALCULATING GDP, NET EXPORTS, AND NNP<\/h3>\n<\/header><section>\n<p id=\"fs-idp89015168\">Based on the information in table&nbsp;below:<\/p>\n\n<ul>\n \t<li>What is the value of GDP?<\/li>\n \t<li>What is the value of net exports?<\/li>\n \t<li>What is the value of NNP?<\/li>\n<\/ul>\n<table id=\"Table_19_04\" summary=\"The table shows information that is useful for calculating GDP, net exports, and NNP. Column 1 lists the category. Column 2 lists the value in billions of dollars. Government purchases; 20 billion. Depreciation; $40 billion. Consumption; $400 billion. Business investment; $60 billion. Exports; 00 billion. Imports; 20 billion.\">\n<tbody>\n<tr>\n<td>Government purchases<\/td>\n<td>$120 billion<\/td>\n<\/tr>\n<tr>\n<td>Depreciation<\/td>\n<td>$40 billion<\/td>\n<\/tr>\n<tr>\n<td>Consumption<\/td>\n<td>$400 billion<\/td>\n<\/tr>\n<tr>\n<td>Investment<\/td>\n<td>$60 billion<\/td>\n<\/tr>\n<tr>\n<td>Exports<\/td>\n<td>$100 billion<\/td>\n<\/tr>\n<tr>\n<td>Imports<\/td>\n<td>$120 billion<\/td>\n<\/tr>\n<tr>\n<td>Income receipts from rest of the world<\/td>\n<td>$10 billion<\/td>\n<\/tr>\n<tr>\n<td>Income payments to rest of the world<\/td>\n<td>$8 billion<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p id=\"fs-idp101104080\"><strong>Step 1.<\/strong> To calculate GDP use the following formula:<\/p>\n<p style=\"text-align: center;\">GDP&nbsp;= Consumption&nbsp;+&nbsp;Investment&nbsp;+&nbsp;Government&nbsp;spending&nbsp;+&nbsp;(Exports&nbsp;\u2013&nbsp;Imports)<\/p>\n=C&nbsp;+&nbsp;I&nbsp;+&nbsp;G&nbsp;+&nbsp;(X&nbsp;\u2013&nbsp;M)\n=$400&nbsp;+&nbsp;$60&nbsp;+&nbsp;$120&nbsp;+&nbsp;($100&nbsp;\u2013&nbsp;$120)\n=$560&nbsp;billion\n\n&nbsp;\n<p id=\"fs-idp52785856\"><strong>Step 2.<\/strong> To calculate net exports, subtract imports from exports.<\/p>\n<p style=\"text-align: center;\">Net&nbsp;exports&nbsp;=&nbsp;X&nbsp;\u2013&nbsp;M<\/p>\n=$100&nbsp;\u2013&nbsp;$120\n=\u2013$20&nbsp;billion\n\n&nbsp;\n<p id=\"fs-idp26542592\"><strong>Step 3.<\/strong> To calculate NNP, use the following formula:<\/p>\n<p style=\"text-align: center;\">NNP&nbsp;=&nbsp;GDP&nbsp;+ Income receipts from the rest of the world&nbsp;\u2013 Income payments to the rest of the world \u2013&nbsp;Depreciation<\/p>\n=$560&nbsp;+ $10 \u2013 $8 \u2013&nbsp;$40\n=$522&nbsp;billion\n\n<\/section><\/div>\n<\/header><\/header>\n\n<div class=\"textbox tryit\">\n<h3>Try It<\/h3>\nThese questions allow you to get as much practice as you need, as you can click the link at the top of the first question (\u201cTry another version of these questions\u201d) to get a new set of questions. Practice until you feel comfortable doing the questions.\n\n[ohm_question sameseed=1]152054-152055-152056-152057[\/ohm_question]\n\n<\/div>\n\n<div class=\"textbox tryit\">\n<h3>Try It<\/h3>\nThis question allow you to get as much practice as you need, as you can click the link at the top of the question (\u201cTry another version of this question\u201d) to get a new version of the question. Practice until you feel comfortable doing the question.\n\n[ohm_question]152058[\/ohm_question]\n\n<\/div>\n\n<div class=\"textbox learning-objectives\">\n<h3>Glossary<\/h3>\n[glossary-page][glossary-term]depreciation: [\/glossary-term]\n[glossary-definition]the process by which capital ages and loses value[\/glossary-definition][glossary-term]gross domestic product (GDP): [\/glossary-term][glossary-definition]the value of the output of all final&nbsp;goods and services produced within a country in a year[\/glossary-definition][glossary-term]gross national product (GNP): [\/glossary-term]\n[glossary-definition]includes what is produced domestically and what is produced by domestic labor and business abroad in a year[\/glossary-definition][glossary-term]national income: [\/glossary-term]\n[glossary-definition]all income to businesses and individuals[\/glossary-definition][glossary-term]net national product (NNP): [\/glossary-term]\n[glossary-definition]GDP minus depreciation[\/glossary-definition]\n[glossary-term]personal income: [\/glossary-term][glossary-definition]income made by individuals[\/glossary-definition][\/glossary-page]\n\n<\/div>\n<section><\/section><\/section>\n","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Objectives<\/h3>\n<ul>\n<li>Contrast and calculate GDP, GNP, and NNP<\/li>\n<\/ul>\n<\/div>\n<p>Besides GDP, there are several different but closely related ways of measuring the size of the economy. We mentioned above that GDP can be thought of as total production and as total purchases. It can also be thought of as total income since anything produced and sold produces income.<\/p>\n<h2>Gross National Product<\/h2>\n<section id=\"fs-idp12355168\">\n<p id=\"fs-idm67605408\">One of the closest cousins of GDP is the <strong>gross national product<\/strong> (GNP). GDP includes only what is produced within a country\u2019s borders. GNP adds what is produced by domestic businesses and labor abroad, and subtracts out any payments sent home to other countries by foreign labor and businesses located in the United States. In other words, GNP counts&nbsp;the production of a nation&#8217;s citizens and firms, whether they are located inside or outside the borders of the nation, while GDP measures&nbsp;all production that happens within the geographic boundaries of a nation. For the United States, the gap between GDP and GNP is relatively small; in recent years, only about 0.2%. For small nations, which may have a substantial share of their population working abroad and sending money back home, the difference can be substantial.<\/p>\n<div class=\"textbox tryit\">\n<h3>Try It<\/h3>\n<p>\t<iframe id=\"lumen_assessment_7458\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=7458&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_7458\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n<\/div>\n<h2>Net National Product<\/h2>\n<p id=\"fs-idp32378176\"><strong>Net national product<\/strong> (NNP) is calculated by taking GNP and then subtracting the value of how much physical capital is worn out, or reduced in value because of aging, over the course of a year. The process by which capital ages and loses value is called&nbsp;<strong>depreciation<\/strong>. The NNP can be further subdivided into <strong>national income<\/strong>, which includes all income to businesses and individuals, and <strong>personal income<\/strong>, which includes only income to people.<\/p>\n<p id=\"fs-idp51237184\">To get an idea of how these calculations work, follow the steps in the following feature.<\/p>\n<header><\/header>\n<header>\n<div class=\"textbox exercises\"><\/div>\n<\/header>\n<header>\n<h3 class=\"title\">CALCULATING GDP, NET EXPORTS, AND NNP<\/h3>\n<\/header>\n<section>\n<p id=\"fs-idp89015168\">Based on the information in table&nbsp;below:<\/p>\n<ul>\n<li>What is the value of GDP?<\/li>\n<li>What is the value of net exports?<\/li>\n<li>What is the value of NNP?<\/li>\n<\/ul>\n<table id=\"Table_19_04\" summary=\"The table shows information that is useful for calculating GDP, net exports, and NNP. Column 1 lists the category. Column 2 lists the value in billions of dollars. Government purchases; 20 billion. Depreciation; $40 billion. Consumption; $400 billion. Business investment; $60 billion. Exports; 00 billion. Imports; 20 billion.\">\n<tbody>\n<tr>\n<td>Government purchases<\/td>\n<td>$120 billion<\/td>\n<\/tr>\n<tr>\n<td>Depreciation<\/td>\n<td>$40 billion<\/td>\n<\/tr>\n<tr>\n<td>Consumption<\/td>\n<td>$400 billion<\/td>\n<\/tr>\n<tr>\n<td>Investment<\/td>\n<td>$60 billion<\/td>\n<\/tr>\n<tr>\n<td>Exports<\/td>\n<td>$100 billion<\/td>\n<\/tr>\n<tr>\n<td>Imports<\/td>\n<td>$120 billion<\/td>\n<\/tr>\n<tr>\n<td>Income receipts from rest of the world<\/td>\n<td>$10 billion<\/td>\n<\/tr>\n<tr>\n<td>Income payments to rest of the world<\/td>\n<td>$8 billion<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p id=\"fs-idp101104080\"><strong>Step 1.<\/strong> To calculate GDP use the following formula:<\/p>\n<p style=\"text-align: center;\">GDP&nbsp;= Consumption&nbsp;+&nbsp;Investment&nbsp;+&nbsp;Government&nbsp;spending&nbsp;+&nbsp;(Exports&nbsp;\u2013&nbsp;Imports)<\/p>\n<p>=C&nbsp;+&nbsp;I&nbsp;+&nbsp;G&nbsp;+&nbsp;(X&nbsp;\u2013&nbsp;M)<br \/>\n=$400&nbsp;+&nbsp;$60&nbsp;+&nbsp;$120&nbsp;+&nbsp;($100&nbsp;\u2013&nbsp;$120)<br \/>\n=$560&nbsp;billion<\/p>\n<p>&nbsp;<\/p>\n<p id=\"fs-idp52785856\"><strong>Step 2.<\/strong> To calculate net exports, subtract imports from exports.<\/p>\n<p style=\"text-align: center;\">Net&nbsp;exports&nbsp;=&nbsp;X&nbsp;\u2013&nbsp;M<\/p>\n<p>=$100&nbsp;\u2013&nbsp;$120<br \/>\n=\u2013$20&nbsp;billion<\/p>\n<p>&nbsp;<\/p>\n<p id=\"fs-idp26542592\"><strong>Step 3.<\/strong> To calculate NNP, use the following formula:<\/p>\n<p style=\"text-align: center;\">NNP&nbsp;=&nbsp;GDP&nbsp;+ Income receipts from the rest of the world&nbsp;\u2013 Income payments to the rest of the world \u2013&nbsp;Depreciation<\/p>\n<p>=$560&nbsp;+ $10 \u2013 $8 \u2013&nbsp;$40<br \/>\n=$522&nbsp;billion<\/p>\n<\/section>\n<div class=\"textbox tryit\">\n<h3>Try It<\/h3>\n<p>These questions allow you to get as much practice as you need, as you can click the link at the top of the first question (\u201cTry another version of these questions\u201d) to get a new set of questions. Practice until you feel comfortable doing the questions.<\/p>\n<p><iframe loading=\"lazy\" id=\"ohm152054\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=152054-152055-152056-152057&theme=oea&iframe_resize_id=ohm152054&sameseed=1&show_question_numbers\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n<div class=\"textbox tryit\">\n<h3>Try It<\/h3>\n<p>This question allow you to get as much practice as you need, as you can click the link at the top of the question (\u201cTry another version of this question\u201d) to get a new version of the question. Practice until you feel comfortable doing the question.<\/p>\n<p><iframe loading=\"lazy\" id=\"ohm152058\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=152058&theme=oea&iframe_resize_id=ohm152058&show_question_numbers\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n<div class=\"textbox learning-objectives\">\n<h3>Glossary<\/h3>\n<div class=\"titlepage\">\n<dl>\n<dt>depreciation: <\/dt>\n<dd>the process by which capital ages and loses value<\/dd>\n<dt>gross domestic product (GDP): <\/dt>\n<dd>the value of the output of all final&nbsp;goods and services produced within a country in a year<\/dd>\n<dt>gross national product (GNP): <\/dt>\n<dd>includes what is produced domestically and what is produced by domestic labor and business abroad in a year<\/dd>\n<dt>national income: <\/dt>\n<dd>all income to businesses and individuals<\/dd>\n<dt>net national product (NNP): <\/dt>\n<dd>GDP minus depreciation<\/dd>\n<dt>personal income: <\/dt>\n<dd>income made by individuals<\/dd>\n<\/dl>\n<\/div>\n<\/div>\n<section><\/section>\n<\/section>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-25\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Adjusting Nominal Values to Real Values. <strong>Authored by<\/strong>: OpenStax College. <strong>Provided by<\/strong>: Rice University. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/cnx.org\/contents\/vEmOH-_p@4.44:O3I2vr0L@7\/Adjusting-Nominal-Values-to-Re\">https:\/\/cnx.org\/contents\/vEmOH-_p@4.44:O3I2vr0L@7\/Adjusting-Nominal-Values-to-Re<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em>. <strong>License Terms<\/strong>: Download for free at http:\/\/cnx.org\/contents\/bc498e1f-efe9-43a0-8dea-d3569ad09a82@4.44<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":141992,"menu_order":5,"template":"","meta":{"_candela_citation":"[{\"type\":\"cc\",\"description\":\"Adjusting Nominal Values to Real Values\",\"author\":\"OpenStax College\",\"organization\":\"Rice University\",\"url\":\"https:\/\/cnx.org\/contents\/vEmOH-_p@4.44:O3I2vr0L@7\/Adjusting-Nominal-Values-to-Re\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"Download for free at http:\/\/cnx.org\/contents\/bc498e1f-efe9-43a0-8dea-d3569ad09a82@4.44\"}]","CANDELA_OUTCOMES_GUID":"71319bff-7334-43c4-8765-6528d2822deb,af755679-22ec-4fc3-b031-292914855a53","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-25","chapter","type-chapter","status-publish","hentry"],"part":20,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/suny-oldwestbury-publicfinanceandpublicpolicy\/wp-json\/pressbooks\/v2\/chapters\/25","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/suny-oldwestbury-publicfinanceandpublicpolicy\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/suny-oldwestbury-publicfinanceandpublicpolicy\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-oldwestbury-publicfinanceandpublicpolicy\/wp-json\/wp\/v2\/users\/141992"}],"version-history":[{"count":0,"href":"https:\/\/courses.lumenlearning.com\/suny-oldwestbury-publicfinanceandpublicpolicy\/wp-json\/pressbooks\/v2\/chapters\/25\/revisions"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/suny-oldwestbury-publicfinanceandpublicpolicy\/wp-json\/pressbooks\/v2\/parts\/20"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/suny-oldwestbury-publicfinanceandpublicpolicy\/wp-json\/pressbooks\/v2\/chapters\/25\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/suny-oldwestbury-publicfinanceandpublicpolicy\/wp-json\/wp\/v2\/media?parent=25"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-oldwestbury-publicfinanceandpublicpolicy\/wp-json\/pressbooks\/v2\/chapter-type?post=25"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-oldwestbury-publicfinanceandpublicpolicy\/wp-json\/wp\/v2\/contributor?post=25"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-oldwestbury-publicfinanceandpublicpolicy\/wp-json\/wp\/v2\/license?post=25"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}