3 commonly used measures of economic activity

Gross Domestic Product (GDP)

3 ways to measure GDP

  • GDP (output) = Value of production - Cost of Inputs
  • GDP (expenditure) = Consumption + Investment + Government Spending + Exports
  • GDP (income) = Wages/income + trading profits + trading surpluses + rental income

Factor Cost Adjustment

When GDP is measures using the Expenditure method, market prices are used which may include taxes and subsidies. The other two components do not include these (factor prices are used.) Factor cost adjustment subtracts indirect taxes and subsidies from GDP at market prices to give GDP at factor prices.

GDP Deflator

A price index that's used to convert GDP data in current prices to data in prices of a base year.

Gross National Income

Measures the total goods and services produced by citizens of a country. The difference from GDP is that GNI includes incomes earned by American (for example) citizens abroad and excludes income earned by non-US citizens inside of the US.

Net National Income

NNI is GNI minus depreciation(capital consumption.) It's hard to measure.