Gross Domestic Product and Gross National Product

Gross Domestic Product (GDP) is the total output of all economic activity in a country over a given period and a country’s GDP will include domestic output by foreign owned firms.

GDP has a mathematical relationship with the measures of gross national income (GNI) and net national income (NNI)

GNI is the sum of all incomes for residents of a country regardless of the location of the assets of these residents.

NNI = GNI less depreciation of physical capital

GDP + interest, dividend, rent and profit abroad = GNI

GNI – physical capital depreciation = NNI

Expenditure Approach to GDP

GDP can also be calculated using the expenditure approach.

GDP = Personal Consumption + Investment + Government Consumption + (Exports – Imports)

GDP = C + I + G + (X-M)

GDP at Factor Cost = Expenditure Approach GDP – Indirect Taxes + Subsidies

GDP does not include items such as: government transfer payments, gifts, unpaid household activities, trades, second hand transactions (e.g., selling used goods on Ebay), and transactions involving illegal goods.

Nominal GDP refers to GDP in current prices.

A price deflator must be applied to the current GDP in order to compare current GDP to the GDP of a prior year.

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