CHAPTER 7

Gross Domestic Products (GDP)

and Gross National Product
(GNP)
Dr. Norzalina Zainudin
Department of Resource
Management and Consumer
Studies,Faculty of Human
Ecology, UPM
  Gross Domestic Product (GDP) refers to the
total market value of all goods and services
produced within the country/ borders of nation
during a specified period.
What is
GDP?
There are
FOUR
elements of
GDP
 The total market value of goods and
services
 GDP value are based on the market price; price at
which a good, service and asset is exchanged in the
market system.

GDP  o Example: If banana is sold RM2 per kg and

the price of computer is RM1000 per unit, then the
value of 100 kg banana and five computers are
RM5200, which equivalent to RM200 for the
banana and RM5000 for the computer.
 What are the final goods and services?

 GDP calculations only take into account the

market price of the final goods and services.
Includes only final goods and services.
 Final goods and services are those that are
GDP actually used or consumed by individuals,
households, firms or the government and
will not be used as components in
producing other goods and services. It is not
intermediate goods and services.
 Where are they being produces?
 Only goods and services produced within the
boundaries of a country will become part of GDP of
that country.
 o Therefore, goods and services produced in
Malaysia are part of Malaysia’s GDP.

GDP  o Example: Petronas, a Malaysian oil company,

produces oil in Vietnam and contributes towards
Vietnam’s GDP and not in Malaysia’s GDP.
 While, when Sony, A Japan Company, produces
electrical products in Malaysia, the value of the
electrical products produced in Malaysia is part of
Malaysia’s GDP and not the GDP of Japan.
 When are they produces?

 GDP concerns only the production of new goods

and services during a particular year.
 o Usually, the period is every three months or a
year.
GDP  o Value of goods and services that are produces in
the present year.
 Ignores most of the secondhand value of used
goods because these goods were counted in
GDP the year they were produced
  GDP = Consumption + Investment +
Government Spending + Net exports
 GDP = C + I + G + (X-M)
WHAT’s
included in
GDP?
 Consumption

 Households (consumption) – the

purchase of goods and services
WHAT’s produced by the individuals or
households.
included in
 Goods: clothes, vegetable,
GDP? uniform
 Services: haircuts, health care,
tourism
 Investment

 Firms (investment) – purchase of

capital goods by firms for use in
production and also changes in the
WHAT’s firms’ inventories.
included in
 Examples:
GDP?  Fixes assets for production, machinery
 New homes
 Inventories
 Government expenditure
 Government (government spending) –
expenditure made by federal, state and
local governments for final goods and
services.
WHAT’s
included in  Examples:
 Schools and roads
GDP?  Salaries to government employees
 Net export

 International sector (export minus

import or net export)
WHAT’s  the difference between what a country
included in earns by exporting goods and services
GDP? to other countries and what it pays
for goods and services that are
imported from other countries.
Real vs.
Nominal
GDP
  Household production
 o Underground economic activity
Not counted  o Health and life expectancy
in GDP  o Leisure time
 o Environmental quality
 o Political freedom and social justice
  To measure the economic performance
 o To indicate the general ‘standard of living’
Uses of  o To know the distribution of income in the income.
GDP/GNI  o To assist the government in the planning.
data  o To evaluate the contribution of economic sector
toward the country’s
 o To facilitate policy-maker plan – policy-makers need
the NI data to draft economic policies for the coming
years.
GDP vs.
GNP
GDP vs.
GNP
END OF
LECTURE