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GNP (the Gross National Product) is the most commonly used measure and the one that extends farthest back in history for the largest number of countries. Real GNP is the sum of the total output of goods and services valued at the price of a given year. Change in GNP is an imperfect measure of change in total output. Because national output consists of millions of different goods and services, we have no completely satisfactory way of converting them to a common unlike tons or square feet that would permit them to be added to a total. In practice different products are added together in proportion of to their relative prices. This method has a disadvantage that relative prices change and in any case may not reflect the value of output to any group of individuals or to the nation.
Moreover, with few exceptions GNP as measured includes only output that is sold or bought in markets. Thus GNP leaves out some important items, notably unpaid work performed within the household. For example GNP in 2001 was eight times s high as in 1880, no alternative measure would deny the great increase in output over the past 120 years. The last fifteen years have been a period of general prosperity. Since 1900 the average rate of growth of the gross national product, that is goods and services, has been 3 percent a year. Output increased over the years because people wanted more income and worked, saved, educated their children, and did other things to get more income by producing more.
The big increase in output in United States signals the Americans were successful in achieving something they wanted and the increase in GNP must be valued on this account. The rise of output has greatly increased our choices about how to live. We have favorable conditions for increased well being. That is the most important contribution an economy can make. The measured total of consumption expenditures is the best indication we have of the extent to which the output of the economy is currently contributing to the satisfaction of the wants of millions of individuals and households. Many factors are responsible for the rising share of personal consumption in GNP.
Consumption depends partly on personal after-tax income, which increased relative to real GNP during the years. After big inflation of the Civil War and World War I, the United States entered prolonged periods in which the price level fluctuated along a declining trend. This trend eliminated most of the increase in the general price level that had occurred during the wars. For the whole time period, including the war, the annual rate of increase of the CPI (consumer price index) was only three-tenths of 1 percent. Output today contains more sophisticated and complex products, whose quality is difficult to measure, than formerly. Possibly, the measurement of changes in the price level underestimates recent improvements in the quality of products and therefore overestimates the rate of inflation.
We have become used to thinking of inflation rates of 4 or 5 percent a year as moderate. But the real effects of such rates are seen only when the consequence of continuing them over a relatively short period are calculated. For example, if the inflation rate is 4 percent, the average price level will double between the time a child enters the first grade and the time he graduates from the college. If the inflation rate is 5 percent, it will have nearly doubled by the time he graduates from high school. From a marketing standpoint, if prices rise faster than consumer incomes, the number of items consumers can buy decreases.
Today, a new car costs the equivalent of about 26 weeks pay for an average US wage earner, up from 18 weeks pay 20 years ago. Whereas inflation is a period of price increases, recession is a time of slow economic activity. Businesses decrease production, unemployment rises, and many consumers have less money to spend. The US economy experienced recessions in the early 1970 s, early 1980 s, and early 1990 s.
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Research essay sample on Gross National Product Goods And Services
