ECONOMICS Essay Example | Topics and Well Written Essays - 1500 words - 1

ECONOMICS - Essay Example So, for example, when Americans receive more income from their overseas investments than foreigners receive from their investments in the United States, American GNP will be somewhat larger than GDP in that year. If Americans receive less income from their overseas investments than foreigners receive from their US investments, on the other hand, American GNP will be somewhat smaller than GDP (http://www.context.org/PEOPLE/celeste/gnpp.htm). Equivalent estimates of GNP (or GDP) produced in a given year may theoretically be arrived at through at least three different accounting approaches, depending upon whether the transactions that determine the prices of final goods and services are looked at and tallied up by focussing on the buying or by focussing on the proceeds from selling or by focussing on the nature of the products themselves. Using the expenditure approach, you can estimate total GNP as the sum of estimates of the amounts of money that are spent on final goods and services by households (Consumption), by business firms (Investment), by government (Government Purchases), and by the world outside the country (Net Exports). Using the incomes approach, you can estimate total GNP by summing up estimates of the different kinds of earnings people receive from producing these same final goods and services: (Plus certain adjustments to account for wear and tear on productive assets like plant and machinery -- depreciation -- and what are called indirect business taxes). Using the product or output approach, you can estimate GNP by summing up the output of all the various organizations producing goods and services in the country, subtracting out the costs of their raw materials to avoid double counting and making suitable adjustments for depreciation and for the value of imports and exports. (Butt 2002, Kopecky 1995) (In theory, all three