6 - TAKING THE NATION'S ECONOMIC PULSE

Abstract

This chapter explains how the flow of an economy's output is measured. The gross national product (GNP) is the most widely used measure of economic performance. The gross national product is a measure of the market value of goods and services that were produced during a specific time period. GNP is a “flow” concept. It is typically measured in terms of an annual rate. By analogy, a water gauge is a device designed to measure the amount of water that flows through a pipe each hour. Similarly, GNP is a device designed to measure the market value of production that “flows” through the economy's factories and shops each year. National income accounting methods illustrate that the flow of goods and services to the household, business, government, and foreign sectors must equal the flow of income to the resource suppliers. The only way in which a nation can increase its real income is to increase its real output. Unless there is an expansion in the production of goods and services valued by consumers, businesses, governments, and foreigners, there will not be an expansion in the real income of a nation. Growth of real income is entirely dependent on the growth of real output.