Question

A. What is the difference between the GDP and GNP?

B. How does aggregate demand versus aggregate supply influence GDP according to Keynesian economics?

C.  How would each of the following change the reported GDP?  Explain.

1. An increase in illegal counterfeit sales.

2. More families eat out instead of eating at home.

3. More Americas purchase cars made in Germany.

D.  How would each of the following change the GNP?  Explain.

1. Volkswagen (German company) opens a new plant in SC.

2. I buy a Ford car built in SC.

3. I buy a new Toyota (Japanese car).

Answer 1

A) GDP or gross domestic product is the value of goods and services produced within the boundary of the country generally counted as a one year period.

GNP or the gross national product is the value of the goods and services produced by the domestic firm inside and outside the domestic boundary of the country, generally counted for 1 year period.

B) According to keynesian economics when aggregate demand increases then there is excess demand in the commodity market. Hence, overall price level increases which may lead to inflation. In this case GDP of the country increases. Again, if aggregate demand decreases just the opposite happens which ends up to deflation and results in the fall in GDP.

When aggregate supply increases then there is excess supply in the commodity market hence price falls thus deflation occurs, hence, GDP falls. Again the opposite occurs in the situation of decreases in aggregate supply when GDP rises due to rise in the price level.

To increase GDP a minimum level of inflation is desirable. So, if in that case aggregate demand is increased or aggreagate supply is decreased then it might influence and help to increase the GDP.

C) An increase in illegal counterfeit sales will not be included in our GDP. Moreover due to these sales price of original product sometimes falls due to substitution effect. Hence, GDP falls indirectly for not having and for having low sales of the original product.

If families eat more out instead of eating at home then GDP increases. As because GDP is the value of goods and services that is goods and services valued at real terms. Hence the readymade food outside costs more than ifvit is prepared at home.

If more Americans purchase cars made in Germany then GDP falls, since, GDP is the value of goods and services produced within the domestic territory of the country.

D) If a germany company opens a new unit in SC then GNP of German will increase. Since, GNP is the value of goods and services produced by the domestic company within and outside the country.

It depends on the resident 'I' belongs to which country. If the company 'ford' belongs to that country of which 'I' is the citizen, then it will be added to the GNP of the country.

If the resident ' I ' is not a japanese then it will not be added on the GNP of the country.

If it is considered the resident 'I' is an American then it will not be added to the GNP of U.S.A.