Gross National Product : The Yardstick of An Economy's Performance

What is the gross national product? It is the name we give to the total dollar value of the goods and entices produced by a nation during a given year. It is the figure you arrive at when you apply the measuring rod of money to the diverse goods and services from apples to zithers, from battleships to machine tools-that a country produces with its land, labor, and capital resources. It equals the sum of the money values of all consumption and investment goods, government purchases, and net exports to other lands.

   GNP is used for many purposes, but the most important one is that it measures the overall performance of an economy. If you ask an economic historian just what happened during the Great Depression, his best short answer would be:

From a 1929 GNP of $104 billion, there was a drop to 1933 GNP of $56 billion. This near-halving of the money value of the flow of goods and services in the American economy caused hardship, bankruptcies, bank failures, riots, and political turmoil. 

   The gross national product (or GNP) is the most comprehensive measure of a nation’s total output of goods and services. It is the sum of the dollar values of consumption, investment, government purchases of goods and services, and net exports. 


   With this preview, we now turn to a discussion of  the elements of the national income and product accounts. We start by distinguishing between real and nominal GNP increases. Then, we turn to the different ways of measuring GNP, as well as the major components of GNP. Finally, we reflect on shortcomings of GNP as an index of economic welfare, suggest an alternative approach in net economic welfare (NEW), and consider the importance of the underground economy.