Gross Domestic Product

GDP 

The market value of all final goods and services produced within a country's borders within a given year 

Also included production made in the US by a foreign company

GNP

Total value of all final goods and services by citizens of that country on its land or foreign land 

What's included in GDP?

C- Personal consumption expenditures (65% of GDP spent here/ groceries, clothes, miscellaneous)

Ig- gross private domestic investment ( 17% spent here/ factory equipment, factory equipment maintenance, construction of housing, unsold inventory of products built in a year)

G- Government spending (20%/ goods and services)

X_n- net exports (-2%/ exports-imports)

C+Ig+G+Xn= GDP 

What's not included in GDP?

1. Intermediate goods: goods that require further processing before they are ready for final use
2. Used/ second hand goods-trying to avoid double counting
3. Purely financial transactions: stocks and bonds 
4. Illegal activities: drugs 
5. Unreported business activity: unreported tips
6. Transfer payments- public(social security, welfare, VA) and private(scholarship)
7. Non-market activity: volunteer work, babysitting, work performed yourself 

Two ways of calculating GDP:

1. The expenditure(spend) approach- add up all the spending on final goods and services produced in a given year (GDP=C+Ig+G+X_n)
2. Income approach- add up all the income that resulted from selling all final goods and services produced in a given year (WRIP+ statistical adjustments)

Expenditure approach= income approach 

Compensation of employees: includes wages, salaries, fringe benefits, social security contributions, health and pension plans 

Rents: income of property owners

Interest: income that comes from money 

Corporate profits: the income of the company stockholders 

Proprietor's income: the income of sole proprietorship and partnerships

Statistical adjustments: indirect business taxes, depreciation, net foreign factor payment  

Net domestic product (NDP)=GDP-depreciation(consumption of fixed capital)

Net national product (NNP)=GNP-depreciation

GNP=GDP+net foreign factor payment