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GDP Measurement of the Economy

Gross Domestic Product (GDP) is a primary means of measuring the economic activity of a nation. GDP is calculated using either an expenditure or an income approach. The former counts the monetary value of all domestic expenditures, within a single year, in four categories: consumption, investment, government, and net exports. The income method totals the various types of income earned by all the nation's households and firms in one year. The GDP is measured in order to provide a comparative tool with which to judge a national economy's annual rate of growth or its standing in comparison with the economies of other nations.

It is important to distinguish GDP from Gross National Product (GNP). GDP "represents the dollar value of all the goods and services produced"--but it counts only those produced within the nation's borders (Kacapyr 9). It includes these factors without regard to whether they were produced by the nation's own citizens and firms or by foreign nationals and firms operating within the nation. But GDP excludes those goods and services produced by its citizens and firms outside its boundaries. The GNP, on the other hand, bases its totals on the goods and services produced by the nation's citizens and firms wherever they are. The GNP does not, however, include those goods and services produced by foreign firms and foreign nationals operating within the nation's borders. In the United States, though GNP was employed for decades, the GDP was adopted in 1991 after one of the periodic revisions to which the system is subjected (the prior revision was performed in 1985). The switch was made because GDP is believed to be "a better measure of short-term monitoring and analysis of the U.S. economy" (Hildebrand 194). The use of the GDP also allows for easier comparisons of the economic activity of the U.S. and other nations. The change in Washington was made as part of a widespread "effort to move toward a set of i...

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GDP Measurement of the Economy. (1969, December 31). In LotsofEssays.com. Retrieved 10:30, March 29, 2024, from https://www.lotsofessays.com/viewpaper/1692054.html