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In: Economics

Until the early 1990s, the U.S. government emphasized GNP rather than GDP as the fundamental measure...

Until the early 1990s, the U.S. government emphasized GNP rather than GDP as the fundamental measure of economic well-being. Which measure should the government prefer if it cares most about the total income of Americans? Which measure should it prefer if it cares most about the total amount of economic activity occurring in the United States?

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Expert Solution

GNP is the gross national product which implies that it includes the economic activity that the nation as a whole undertakes which is regardless of the fact that the Americn lives in US or outside it . GNP does not include earnings by foreign residents while inside US, only the ones earned by its citizens.

GNP= GDP + income earned by US citizens outside the borders of US - income earned by non residents within the borders of US.

GDP is the final value of goods and services produced in an economy expressed in monetary terms. it is the gross domestic product which implies the economic activities undertaken within the domestic or geographical boundaries of US regardless of the fact that the income is earned by a non resident.

If the government cares about the total income of the Americans , then the measure used should be GNP which measures just the income of Americans regardless of the fact of the location it is coming from ie within or outside of US.

If on the other hand the government is concerned about the economic activity undertaken within the geographical borders of US , regardless of who is earning it , then we look at the GDP of US because it focuses on what is produced within the borders regardless of who produces it (Americns or non americans)

Rahul Sunny answered 1 year ago
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