Consumer Spending Habits: Measuring Aggregate Output GNP

Measuring Aggregate Output Gnp In reading the newspapers and watching television news reports you have probably already been exposed to the term "gross national product," the cornerstone of our system of National Income and Product Accounts. Gross national product (GNP) is the market value of an economy's final goods and services produced over a period of one year. The goods and services whose values are included in GNP are the nation's final products that are sold to final users and not used as materials, parts, or services to be incorporated in the value of other items that are to be resold. Gross national product is a key economic variable that is closely watched in gauging the performance of the economy. Both job opportunities and earnings in a nation are linked to production. When the output of final products in the economy grows, so will income and job opportunities. More production means greater use of inputs; and as more inputs are used, the earnings of those who supply the inputs goes up as do the opportunities for employment. Conversely, if GNP falls, fewer resources will be used and income in the nation will also fall. Every three months the U.S. Department of Commerce issues new statistics on GNP. This event is eagerly awaited by business managers, investors, and policy makers in government agencies. Literally thousands of decisions by business firms and governments hinge on the ups and downs of production as measured by GNP. Without data on GNP, it would be impossible to formulate policies to help control unemployment and inflation or test theories about the causes of unemployment and inflation. How GNP Is Calculated GNP is calculated by multiplying the quantity of each individual type of final product by its market price. The dollar values of all final products derived in this way are then added to obtain a sum that equals the market value of the economy's aggregate production of final products. We aggregate the value of loaves of bread, computers, tickets to football games, pizzas, televisions, new homes, new cars, bulldozers, drill presses, aircraft, insurance, medical services, and other items produced over a year to measure GNP. Because GNP is a measure of the market value of aggregate production, transactions that don't involve production aren't included in it. For example, the value of sales of stocks and bonds is not part of GNP because these and other purely financial transactions don't involve actual production of goods and services. Changes in the value of existing assets are also excluded from GNP because they don't represent production of new goods and services. The value of used goods sold during the year, likewise, is not part of GNP because the value of these goods was counted in prior years. Finally, goods and services not sold through markets in most cases are not reflected in GNP. For example, if you clean your own apartment or cook your own meals, the value of these productive services you provide to yourself rather than purchase in a market will not be included in GNP. By placing dollar values on output based on the market prices of final products, we measure the worth of those products to buyers. We also avoid the difficulties involved in adding up goods and services measured in different units. Does aggregate production go up or down, for example, if the economy produces 50,000 fewer cars and 100,000 more insurance policies in a given year? To answer this question, simply compare the value of the 50,000 cars and the 100,000 insurance policies at their market prices. If the market value of the insurance policies exceeds the market value of the cars, we would say that aggregate output has increased. Using market prices to value output, therefore, provides us with a convenient way to compare production from one year to another. The U.S. economy produces an enormous volume of products: in 1990 the market value of those items as measured by gross national product was $5.4 trillion.