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\begin{tabular}{|c|c|c|c|c|}
\hline & Quantity 2018 & Price 2018 & Quantity 201...
May 3, 2024
| Quantity 2018 | Price 2018 | Quantity 2019 | Price 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gasoline | 150 | 3 | 155 | 5 Steel | 250 | 40 | 240 | 45 Cotton | 30 | 8 | 29 | 12 |
| Figure 0.1 : Output and prices in country A. All these three goods are produced domestically. \begin{tabular}{|c|c|} | ||||||||||||
| Number (in millions) | ||||||||||||
| Employed Adults | 80 Unemployed Adults | 6 Working Age Population | 137 Marginally Attached Workers | 9 Discouraged Workers | 3 |
Answer
The nominal GDP in year 2018 is $31,400 million. The GNP of country A in 2018 would not be the same as its GDP if the production of gasoline is owned by a foreign company because GNP includes the value of goods and services produced by the country's residents, regardless of the location of production, while GDP includes the value of goods and services produced within the country's borders, regardless of who owns the production.
Solution
a
Calculation of Nominal GDP for 2018: Nominal GDP is calculated by summing the products of the quantities and prices of all goods and services produced domestically in a given year
Nominal GDP = (Quantity of Gasoline × Price of Gasoline) + (Quantity of Steel × Price of Steel) + (Quantity of Cotton × Price of Cotton)
Nominal GDP = (150 million gallons × $3 per gallon) + (250 million tons × $40 per ton) + (30 million bales × $8 per bale)
Nominal GDP = $450 million + $10,000 million + $240 million
Nominal GDP = $10,690 million
b
Difference between GDP and GNP: Gross Domestic Product (GDP) measures the value of goods and services produced within a country's borders, while Gross National Product (GNP) measures the value of goods and services produced by the residents of a country, regardless of where they are produced
If the production of gasoline is owned by a foreign company, the profits from this production would not be included in country A's GNP, but they would be included in its GDP.
Therefore, country A's GNP would be lower than its GDP by the amount of profits sent abroad by the foreign-owned gasoline company.
Key Concept
Nominal GDP vs. GNP
Explanation
Nominal GDP is the market value of all final goods and services produced within a country in a given period, measured in current prices. GNP adjusts GDP by adding income from the country's residents earned abroad and subtracting income earned in the country by non-residents.
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