ECO 360/ Economic Indicators

Essay by BWMP July 2005

download word file, 8 pages 3.0

Downloaded 550 times

When one speaks of the economy they should speak of it as if it were an animate object. An economy may healthy, productive or efficient. Likewise, an economy may be weak, slow or inefficient. The question is how do we know how to classify our economy? GNP -GROSS NATIONAL PRODUCT. Economists have devised numerous statistics designed to ascertain the overall health of our economy. Historically, the most quoted measure of economic activity is what is called Gross National Product (GNP). The Gross National Product (GNP) is a nation's total output of goods and services produced BY a country in one year. In obtaining the value of the GNP, only the final value of a product is counted (e.g. homes but not the construction materials they were built with). The three major components of GNP are consumer purchases, government spending, private investment and exports.

The Gross Domestic Product (GDP) is the monetary value of all goods and services performed in a nation in one year.

GDP measures the economic strength of a nation. It is computed by multiplying the quantity of all goods and services by its price. When this is done for all three categories, Consumer spending, Government Spending and Investments, the results are added to give us the GDP. In the last several years GDP has gained favor as a more accurate barometer of the state of the economy. With growing globalization our economy is increasingly reliant on goods we produce beyond our national borders. While GNP does not calculate this, GDP does. Though the GDP and GNP are the most widely used system of determining a nation's economic performance, they are certainly not perfect. There are certain factors within the economy that keep the GDP and GNP from being the most reliable measurements.

The first factors...