AMIZAM BT T. AHMADPGD 130010

i) GROSS DOMESTIC PRODUCT (GDP)

The GDP is the broadest quantitative measure of a nation's total economic activity, usually is one the primary indicators used to gauge the health of a country's economy. It was defined by OECD as an aggregate measure of production equal to the sum of the gross values added of all resident institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs). It represents the total dollar value of all goods and services produced over a specific time period.

Not only to measure the economic performance of a whole country or region, but can also measured the relative contribution of an industry sector. The more familiar use of GDP estimates is to calculate the growth of the economy from year to year (and recently from quarter to quarter). The pattern of GDP growth is held to indicate the success or failure of economic policy and to determine whether an economy is 'in recession'.

Measuring GDP is can be done in one of two ways: either by adding up what everyone earned in a year (income approach), or by adding up what everyone spent (expenditure method). A significant change in GDP, whether up or down, usually has a significant effect on the stock market. It's not hard to understand why a bad economy usually means lower profits for companies, which in turn means lower stock prices. Investors really worry about negative GDP growth, which is one of the factors economists use to determine whether an economy is in a recession.

The equation used to calculate GDP is :

GDP = C + G + I + NX where:

"C" = private consumption, or consumer spending, in a nation's economy"G" = sum of government spending"I" = sum of all the country's businesses spending on capital"NX" = nation's total net exports, (Exports - Imports)

Market value: GDP is a market value—goods and services are valued at their market prices. Final goods and services: A final good (or service) is an item bought by its final user during a

specified time period. Produced within a country: GDP measures production within a country—domestic production. In a given time period: GDP measures production during a specific time period, normally a year or a

quarter of a year.

GDP is total spending. Total spending is classified into four components: Consumption (C) - total spending by households on goods and services

Investment (I) - total spending on goods that will be used in the future to produce more goods.

Government Purchases (G) - all spending on the goods and services purchased by government at the federal, state, and local levels.

Net Exports (NX) - NX = exports – importsExports represent foreign spending on the economy’s goods and services. Imports are the portions of C, I, and G that are spent on goods & services produced abroad.

Adding up all the components of GDP gives:Y = C + I + G + NX

GDP = consumption + investment + (government spending) + (exports – imports)

ii) GROSS NATIONAL PRODUCT (GNP)

GNP in general, means the total of all business production and service sector industry in a country plus its gain on overseas investment. It was the total value of all final goods and services produced within a nation in a particular year, plus income earned by its citizens (including income of those located abroad), minus income of non-residents located in that country. In some cases GNP will also be calculated by subtracting the capital gains of foreign nationals or companies earned domestically.

Basically, GNP measures the value of goods and services that the country's citizens produced regardless of their location. GNP is one measure of the economic condition of a country, under the assumption that a higher GNP leads to a higher quality of living, all other things being equal. Through GNP an accurate portrait of a nation’s yearly economy can be analyzed and studied for trends since GNP calculates the total income of all the nationals of a country.

GNP can also be calculated on a per capita basis to demonstrate the consumer buying power of an individual from a particular country, and an estimate of average wealth, wages, and ownership distribution in a society. GNP measures the total income earned by residents of an economy from engaging in economic activities.

GNP can be solved using the formula:

GNP = GDP + Net factor income from abroad (difference between income earned in foreign countries by residents of a country and income earned by foreign nationals domestically).

GNP helps to measure the contribution of residents of a country to the flow of goods and services within and outside the national territory. 

Expenditure Approach to calculating GNP : GNP = GDP + NR (Net income from assets abroad - Net Income Receipts).

iii) GROSS NATIONAL INCOME (GNI)

GNI is defined as the sum of value added by all producers who are residents in a nation, plus any product taxes (minus subsidies) not included in output, plus income received from abroad such as employee compensation and property income.

National income (NI) is the total value a country’s final output of all new goods and services produced in one year. NI is identical to the amount spent as national expenditure, which is also identical to what is produced as national output. National output, income and expenditure, are generated when there is an exchange involving a monetary transaction. However, for an individual economic transaction to be included in aggregate national income it must involve the purchase of newly produced goods or services. In other words, it must create a genuine addition to the ‘value’ of the scarce resources.

GNI measures income received by a country both domestically and from overseas. In this respect, GNI is quite similar to Gross National Product (GNP), which measures output from the citizens and companies of a particular nation, regardless of whether they are located within its boundaries or overseas.