四 、
Investment
Tools: Economics: Macroeconomic Analysis
1.A: Preliminary Reading: Taking the Nation's Economic Pulse
a: Explain the two approaches to measuring gross domestic product (GDP) and calculate GDP
using each approach.
The expenditure approach is a demand-based concept measured by summing personal
consumption, gross private investment, government consumption and gross investment, and
net exports of goods and services.
Resource cost/income approach: The resource cost/income approach is a supply or
production oriented approach and measures GDP by summing the following components
employee compensation, proprietors' income, rents, corporate profits, interest income,
indirect business taxes, depreciation, and net income of foreigners.
b: Distinguish between GDP and gross national product (GNP).
GNP is the total market value of all final goods and services produced by the citizens of a
country no matter where they are residing. Prior to 1991 GNP was used to measure US
production.
GNP and GDP are closely related concepts. GDP is a measure of the output that is produced
domestically, while GNP is a measure of the output produced by the nationals of a country
regardless of where they live. GNP is GDP PLUS income earned by citizens from their work
and investments abroad, LESS the income earned by foreigners from their work and
investments within the country.
GDP measures output within the borders of a country regardless of the citizenship of the
producer. GNP measures the output of the country’s nationals regardless of where they live.
c: Explain the difference between real and nominal GDP.
An important use of GDP is to compare the level of production over time. However, when
nominal GDP (GDP measured in terms of current prices) changes from one period to the
next, it reflects both changes in production and price changes. Therefore, economists
attempt to filter out the impact of GDP by calculating GDP measured in terms of prices from
some base year. This measure is called real GDP. Changes in real GDP correspond to real
or actual changes in production.
Since nominal GDP is measured with current prices and real GDP is measured relative to the
price level in some base year, we need a price index to indicate the relative price change
between periods.
d: Distinguish between the GDP deflator and the consumer price index.
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