Question

There are two approaches to measuring a country's macroeconomic activity, which are Gross Domestic Product, and National Income. What do each of these approaches measure. List at least one advantage and disadvantage of each approach.

Answer 1

The GDP or the gross domestic production measures the total goods and services produced within the national boundary at a given period of time. It measures all the good and services as long as they are produced within the national boundary.

The national income is GDP + total income earned by the national across the world - total income earned by the foreign national in the national boundary. It measures the income earned by the national across the world.

AN advantage will be :

• GDP covers all the aspects of production in the nation and it is widely accepted across the world, so it can be used for comparison as well.
• GNP measures how productive the nationals are in the world and how much the national potential in the world is.

Disadvantage:

• GDP ignores the impact of the economic growth in the environment.
• GNP can be misleading as it also includes the Data which are not at all in relation to the national production.