Key Economic Indicators: Understanding GDP, GNP, and RND
1. Macroeconomic Magnitudes
Macroeconomic magnitudes are the instruments economists use to determine the state of the economy.
2. What is GDP?
Gross Domestic Product (GDP) is the total market value of all final goods and services produced within an economy during a specific period.
3. How are Economic Variations in GDP Expressed?
Economic variations can be expressed as GDP at factor cost (GDPfc) or GDP at market prices (GDPmp).
GDP at Factor Cost (GDPfc)
GDPfc measures the value of a country’s domestic production, including goods and services, at factory prices. It does not include indirect taxes linked to production and importation, but it does include subsidies received by companies.
GDP at Market Prices (GDPmp)
GDPmp measures the value of a country’s domestic production, including goods and services, at market prices. It includes indirect taxes linked to production and importation, but it does not include subsidies received by companies.
4. Define GNP
Gross National Product (GNP) is calculated as: GDP + the result of income earned by a country’s residents from investments abroad, minus the income earned by foreigners within the country.
5. Alternative Methods of Measuring Economic Activity
The Production Method
The production method is used to value the production of companies in monetary units during a specific period.
The Income Method
The income method measures the total income earned by factors of production during a specific period.
The Expenditure Method
The expenditure method measures the total value of purchases of final goods and services during a specific period.
6. What are the Components of RND?
Real National Disposable Income (RND) is determined by the sum of the following:
- Net National Product (NNP)
- Net Current Transfers received from the rest of the world (NCTROW)
- Net Subsidies on production and imports received from the rest of the world (NSROW)
7. What is the Formula for RND?
RND = NNP + NCTROW + NSROW
8. What Does RND Determine? Who Defined It?
National Disposable Income determines the consumption and savings of an economy. John Maynard Keynes first defined it, establishing that consumption is a stable function of income, meaning that an increase or decrease in income leads to modifications in consumption.