Many professions commonly use acronyms.
To doctors, accountants, and baseball players,
the letters MRI (magnetic resonance imaging),
GAAP (generally accepted accounting principles),
and ERA (earned run average), respectively, need no explanation.
To someone unfamiliar with these fields, however,
without an explanation these acronyms are a stumbling block
to a better understanding of the subject at hand.Economics
is no different. Economists use many acronyms.
One of the most common is GDP, which stands for
gross domestic product. It is often cited in newspapers, on
the television news, and in reports by governments, central
banks, and the business community. It has become widely
used as a reference point for the health of national and global
economies. When GDP is growing, especially if inflation is
not a problem, workers and businesses are generally better
off than when it is not.Measuring
GDP
GDP measures the monetary value of final goods and
services—that is, those that are bought by the final user—produced
in a country in a given period of time (say a quarter or
a year). It counts all the output generated within the borders
of a country. GDP is composed of goods and services produced
for sale in the market and also includes some nonmarket
production, such as defense or education services provided
by the government. An alternative concept, gross national
product, or GNP, counts all the output of the residents of a
country. So if a German-owned company has a factory in the
United States, the output of this factory would be included in
U.S. GDP, but in German GNP.Not
all productive activity is included in GDP. For example,
unpaid work (such as that performed in the home or by volunteers)
and black-market activities are not included because
they are difficult to measure and value accurately. That means,
for example, that a baker who produces a loaf of bread for a
customer would contribute to GDP, but would not contribute
to GDP if he baked the same loaf for his family
Many professions commonly use acronyms.To doctors, accountants, and baseball players,the letters MRI (magnetic resonance imaging),GAAP (generally accepted accounting principles),and ERA (earned run average), respectively, need no explanation.To someone unfamiliar with these fields, however,without an explanation these acronyms are a stumbling blockto a better understanding of the subject at hand.Economicsis no different. Economists use many acronyms.One of the most common is GDP, which stands forgross domestic product. It is often cited in newspapers, onthe television news, and in reports by governments, centralbanks, and the business community. It has become widelyused as a reference point for the health of national and globaleconomies. When GDP is growing, especially if inflation isnot a problem, workers and businesses are generally betteroff than when it is not.MeasuringGDPGDP measures the monetary value of final goods andservices—that is, those that are bought by the final user—producedin a country in a given period of time (say a quarter ora year). It counts all the output generated within the bordersof a country. GDP is composed of goods and services producedfor sale in the market and also includes some nonmarketproduction, such as defense or education services providedby the government. An alternative concept, gross nationalproduct, or GNP, counts all the output of the residents of acountry. So if a German-owned company has a factory in theUnited States, the output of this factory would be included inU.S. GDP, but in German GNP.Notall productive activity is included in GDP. For example,unpaid work (such as that performed in the home or by volunteers)and black-market activities are not included becausethey are difficult to measure and value accurately. That means,for example, that a baker who produces a loaf of bread for acustomer would contribute to GDP, but would not contributeto GDP if he baked the same loaf for his family
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