National v. Domestic
Domestic refers to the stuff made in a particular country. It is concerned with the
question of “where” something is made. National refers to the stuff made by the
citizens/nationals of a country, regardless of where they produced it. National is
concerned with the question of “who” made something.
For example, if Honda opens a factory in Tennessee, the value of all of the cars made in
that factory is included in US GDP, because they were produced here. But much of the
money made by selling these cars is sent back to Honda HQ in Japan. That money is
subtracted from US GDP and added to Japanese GDP to find the Gross National Product
(GNP) for both countries.
GNP = GDP + property income from abroad – property income paid abroad
Gross v. Net
Time and use wear down the capital we have available to make finished goods and
services. In order just to maintain the same level of production, companies have to spend
money on replacing worn out capital. The amount of money spent on such replacement
is depreciation (also called capital consumption).
Gross National Product includes the amount of money spent on replacing worn out
capital. Net National Product (NNP or NNY) means that the depreciation value is
subtracted from the total. Imagine a school where they buy 10 new whiteboards each
year, but 3 old ones have to be replaced. The gross amount of investment is 10, but the
net is only 7.
NNP = GNP – Depreciation
Nominal v. Real
Nominal refers to the money value, or “price sticker” value, of goods and services. Real
refers to how much actual stuff we get. These values are different because of inflation.
If prices keep going up, nominal value increases, but real values stay the same. It’s
possible for the nominal value to be less than the real value because of deflation, but that
doesn’t happen very often.
In 1945, six 12 ounce bottles of Pepsi cost $0.23; that’s $0.0032 per ounce. Today at
Cub, Pepsi is on sale for $9 for three 12 packs of 12 ounce cans. That’s $0.021 per
ounce. The real value of Pepsi hasn’t changed – it’s the same ounce of Pepsi from 60
years ago. The nominal value, however, has increased over 500%.
GDPreal = GDPnominal – Inflation OR GDPreal = GDPnominal / Inflation Index
Total v. per capita
Total GDP refers to what we get when we add up all the component values for a whole
country. That tells us how big the economy is, but it is not very useful to telling us how
well off the people are in the country. To get a better idea of that, we take the total GDP
and divide it by the number of people in the country, so we know what the average
amount of GDP per person, or per capita to use the fancy Latin.
According to the World Bank, Spain and Russia have nearly equal total GDP: about $1.6
trillion. But because Russia’s population is bigger than Spain’s, their GDP values per
capita are much different. Russia has a per capita GDP of about $11,400 while Spain’s
GDP per capita is about $40,000.
GDP per capita = GDP / Population