Study GuideEconomics–GDP, Inflation, and Unemployment1. GDP1.1What is GDP?Gross Domestic Product (GDP)is themarket value of all final goods and services producedwithin a country in one year.It is themost important measure of a country’s economic performancebecause it tells us howmuch an economy produces.A closely related concept isGross National Product (GNP).GNP measures themarket value of all final goods and services produced by a nation’s citizensand firms in one year, no matter where the production happens.1.2GDP vs GNP: What’s the Difference?The difference between GDP and GNP is mainly aboutwhere production takes placeandwhoproduces it.•GDP includes:oGoods and services producedinside a country, even if they are made byforeignfirms or workers.•GNP includes:oGoods and services produced by a country’sown citizens and firms, even ifproduction happensoutside the country.In practice,GDP and GNP values are usually very close, so economists often useGDPto studyoverall economic activity.For this reason, the rest of this chapter focuses onGDP.Preview Mode
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