Gross Domestic Product (GDP) and Gross National Income (GNI) are two common measures of a country's economic output. Both GDP and GNI are measures of a country's total economic activity.

• GDP is the market value of all goods and services produced within a country's borders over a given period of time, usually a year.
  • It includes the value of all goods and services produced by the country's residents, including both citizens and non-citizens, as well as any income earned by foreign residents within the country's borders.
  • GDP is often used as a measure of a country's standard of living and economic growth.
• GNI is a measure of a country's total income, including income earned by its citizens and businesses both domestically and abroad.
  • GNI is calculated by adding the country's GDP to net income received from abroad, such as income earned by foreign residents, and subtracting income earned by domestic residents abroad.
  • GNI provides a more comprehensive measure of a country's economic activity and standard of living, as it takes into account both domestic and foreign economic activity.

Gross Domestic Product (GDP) is the most widely used measure of a country's economic output and is typically calculated using one of three methods: the output method, the income method, and the expenditure method.

• Output Method: calculates GDP by adding up the market value of all goods and services produced within a country's borders over a given period of time, usually a year. This method measures the total value of production in the economy, regardless of how that production is financed or who earns the income from that production.
  • The "value added" concept is used in the output method of measuring Gross Domestic Product (GDP) to ensure that the same output is not counted multiple times.
    • The value added concept is used to ensure that only the value added by each stage of production is counted, rather than counting the same output multiple times.
    • For example, consider the production of a car. The car is produced through a series of stages, such as the production of steel, the production of tires, and the assembly of the car. If each stage of production were to be counted as part of GDP, the final output of the car would be counted multiple times.
  • Value added is calculated as the difference between the value of output and the value of intermediate inputs used in the production process.
    • Intermediate inputs are inputs that are used in the production process but are not included in the final output.
    • In the example of the car, the value added at each stage of production would be the difference between the value of the output produced at that stage and the value of the intermediate inputs used in that stage.
  • The value added at each stage is then summed to arrive at the final estimate of GDP.
  • A numerical example: Suppose there are two companies, Company A and Company B, that produce a final product, say a car.
    • Company A produces the engine and body of the car, while
    • Company B produces the wheels and other accessories.
    • The value added by Company A:Value of the engine produced by Company A: $2,000
      Value of the raw materials used to produce the engine: $500
      Value added by Company A = Value of the engine - Value of raw materials = $2,000 - $500 = $1,500
    • The value added by Company B:Value of the wheels and accessories produced by Company B: $1,000
      Value of the raw materials used to produce the wheels and accessories: $200
      Value added by Company B = Value of the wheels and accessories - Value of raw materials = $1,000 - $200 = $800
    • The total value added by both companies would be the sum of the value added by each company:Total value added = Value added by Company A + Value added by Company B = $1,500 + $800 = $2,300
• Income Method: The income method calculates GDP by adding up the total income earned by all factors of production, such as labor and capital, within a country's borders over a given period of time.
  • This method measures the total income generated by the economy, regardless of how that income is spent.
• Expenditure Method: The expenditure method calculates GDP by adding up the total spending on consumption, investment, government purchases, and net exports (exports minus imports) within a country's borders over a given period of time.
  • This method measures the total demand for goods and services in the economy, as well as the total supply of goods and services available to meet that demand.
• All three methods should produce the same estimate of GDP, as they are measuring the same underlying economic activity.

• Market prices: prices paid by consumers; they take into account indirect taxes and subsidies.
• Basic prices (factor costs): prices charged by producers before the addition of indirect taxes and the deduction of subsidies.
• GDP at Market Prices = GDP at Factor Costs + Indirect Taxes − Subsidies

• Net investment refers to the amount of investment made in an economy after subtracting the amount of depreciation of existing capital stock.
• Gross investment is the total amount of investment made in an economy, including both investment in new capital stock and investment in the replacement of worn-out capital stock.
• Depreciation is a measure of the amount of capital stock that has become worn out or obsolete during a given period of time.
• GDP and GNI include gross investment.
• Net domestic product (NDP) and net national income (NNI) only include net investment.
  • NET domestic product (NDP) = GDP - depreciation
  • NET national income (NNI) = GNI - depreciation