GDP and National Income
Explain GDP, GNP and what national income tells us about development.
National income measures the value of a country's output.
- Define GDP and GNP.
- Distinguish nominal from real GDP.
- Explain the limits of GDP as a measure of welfare.
GDP and GNP
GDP is the total value of final goods and services produced within a country in a year. GNP adds income earned abroad by citizens and subtracts income earned locally by foreigners.
Nominal and Real
Nominal GDP uses current prices. Real GDP adjusts for inflation, so changes reflect actual output rather than price rises.
Limits of GDP
GDP does not capture inequality, unpaid work, environmental damage or health and education quality. A country can have high GDP but poor living standards.
GDP rises 10% while prices rise 12% — real output has actually fallen.
GDP per capita divides GDP by population, giving a rough average income.
Practice
- Define GDP and GNP.
- Explain the difference between nominal and real GDP.
- Give two reasons GDP is an imperfect measure of welfare.
Recap
GDP measures output within a country; GNP includes net income from abroad. Real GDP and per capita figures give a fairer picture.
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National Income and Development
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