GDP, GNI and comparable real income
| English | 中文 | Pinyin |
|---|---|---|
| gross national income/ɡrəʊs ˈnæʃənl ˈɪŋkʌm/ | 国民总收入 | guó mín zǒng shōu rù |
| purchasing-power parity | 购买力平价 | gòu mǎi lì píng jià |
A decision you can investigate
- A larger money value of output may reflect higher prices or more people rather than higher output per person.
- Choose a measure that answers the comparison being made.
Build the explanation
- GDP measures production within an economy over a period. Nominal GDP values it at current prices; a real or volume measure removes price changes using a stated reference-price/index method. Gross national income 国民总收入 (GNI) adds net primary income received from abroad to GDP: it concerns resident income, not simply citizenship. Total measures describe the whole economy; per-capita measures divide by population.
- Compare growth using equivalent real measures, periods and bases. A level and a growth rate answer different questions. Purchasing-power parity 购买力平价 adjusts currency comparisons for differences in price levels; market exchange conversion answers a different question and can change rankings.
Work through the evidence
- Fictional nominal GDP rises from 1000 to 1133; the GDP deflator rises from 100 to 110. Real GDP=nominal GDP ÷ deflator × 100, so final real output=1133/110×100=1030. Nominal growth is 13.3%, but real growth is 3%. Population rises from 50 to 52; real GDP per head moves from 1000/50=20 to 1030/52≈19.81, a fall of about 0.96%.
- With primary income received 40 and paid 70, final GNI=1133+40−70=1103 in current-price units. For a separate country comparison, A has 60000 local units per head and a PPP conversion factor of 3 local units per international dollar:20000 international dollars. B has 12000 and a PPP factor 0.8:15000. These differ from market conversions of 6 and 1 local units per US dollar, which would give 10000 and 12000 US dollars.
What is final real GDP at the stated reference prices?
Divide 1133 by 110 and multiply by 100.
Which measure is 1103 in the example?
Add net primary income 40−70 to nominal GDP 1133.
Positive real GDP growth necessarily means real GDP per capita rises.
Population can grow faster than total real output.
Test the limits
- The deflator is not automatically the consumer-price index: it covers domestic production rather than only household purchases. A second-hand asset transfer is not newly produced output, though a current transaction service can count. Capital gains are not new production.
- PPP estimates depend on baskets, coverage and methods; per-capita averages hide distribution. Never compare the fictional international-dollar values with actual country data without matching definitions and dates. Real growth does not alone prove improved wellbeing.
Which country has higher PPP-adjusted income in the fictional comparison?
Use each stated PPP conversion factor, not the market exchange rates.
Apply and explain your answer
- How can total real output rise while real output per person falls?
- Population grows faster than real output: here 4% population growth exceeds 3% real-output growth.
Match the terms to their meanings.
Use each term for its stated economic relationship.
Use the terms precisely
- gross national income: GDP plus net primary income received from abroad by residents.
- purchasing-power parity: A currency comparison adjusted for the prices of comparable goods and services.
Fictional nominal GDP rises from 1000 to 1133; the GDP deflator rises from 100 to 110. Real GDP=nominal GDP ÷ deflator × 100, so final real output=1133/110×100=1030. Nominal growth is 13.3%, but real growth is 3%. Population rises from 50 to 52; real GDP per head moves from 1000/50=20 to 1030/52≈19.81, a fall of about 0.96%. With primary income received 40 and paid 70, final GNI=1133+40−70=1103 in current-price units. For a separate country comparison, A has 60000 local units per head and a PPP conversion factor of 3 local units per international dollar:20000 international dollars. B has 12000 and a PPP factor 0.8:15000. These differ from market conversions of 6 and 1 local units per US dollar, which would give 10000 and 12000 US dollars.
The deflator is not automatically the consumer-price index: it covers domestic production rather than only household purchases. A second-hand asset transfer is not newly produced output, though a current transaction service can count. Capital gains are not new production. PPP estimates depend on baskets, coverage and methods; per-capita averages hide distribution. Never compare the fictional international-dollar values with actual country data without matching definitions and dates. Real growth does not alone prove improved wellbeing.
GDP measures production within an economy over a period. Nominal GDP values it at current prices; a real or volume measure removes price changes using a stated reference-price/index method. Gross national income (GNI) adds net primary income received from abroad to GDP: it concerns resident income, not simply citizenship. Total measures describe the whole economy; per-capita measures divide by population.