What Is Economics?

At the most abstract level, the economy is a system that exists to produce and provide people in
a society with the goods and services they need to live and do what they want. The size of this
system can grow as the population gets larger or as the existing population gets wealthier.
Economists often measure the size of the economy with metrics such as gross domestic
product (GDP), which measures the value of all the goods and services produced by a country
in a year.

Capitalism is defined as a system of production whereby business owners (capitalists) produce

goods for sale in order to make a profit and not for personal consumption. In capitalism,
capitalists own the business including the tools used for production as well as the finished
product. Workers are hired in return for wages, and the worker owns neither the tools he uses in
the production process nor the finished product when it’s complete.

Capitalist production relies on the market for the allocation and distribution of the goods that are
produced for sale. A market is a venue that brings together buyers and sellers, and where
prices are established that determine who gets what and how much of it.

Socialism is a system of production whereby workers collectively own the business, the tools of
production, the finished product, and share the profits – instead of having business owners who
retain private ownership of all of the business and simply hire workers in return for wages.
Socialist production often does produce for profits and utilizes the market to distribute goods
and services

Communism is a system of production where private property ceases to exist and the people of
a society collectively own the tools of production. Communism does not use a market system,
but instead relies on a central planner who organizes production (tells people who will work in
what job) and distributes goods and services to consumers based on need. Sometimes this is
called a command economy.

Gross Domestic Product – GDP Definition

What Is Gross Domestic Product (GDP)?
Gross domestic product (GDP) is the monetary value of all the finished goods and services
produced within a country's borders in a specific time period. Though GDP is usually calculated
on an annual basis, it can be calculated on a quarterlybasis as well
GDP includes all private and public consumption, government outlays,
investments, private inventories, paid-in construction costs and the foreign balance of
trade (exports are added, imports are subtracted).
What is the Net Domestic Product (NDP)
The net domestic product (NDP) is an annual measure of the economic output of a nation that is
adjusted to account for depreciation, calculated by subtracting depreciation from the gross
domestic product (GDP).

BREAKING DOWN Net Domestic Product (NDP)

Net domestic product accounts for capital that has been consumed over the year in the form of
housing, vehicle, or machinery deterioration. The depreciation accounted for is often referred to
as capital consumption allowance and represents the amount needed in order to replace those
depreciated assets.

What is Nominal Gross Domestic Product

Nominal gross domestic product is gross domestic product (GDP) evaluated at current market
prices. GDP is the monetary value of all the finished goods and services produced within a
country’s borders in a specific time period. Nominal differs from real GDP in that it includes
changes in prices due to inflation or a rise in the overall price level. Typically, economists use a
gross domestic deflator to convert nominal GDP to real GDP. Also known as "current dollar
GDP" or "chained dollar GDP."

What is Real Gross Domestic Product (GDP)

Real gross domestic product (GDP) is an inflation-adjusted measure that reflects the value of all
goods and services produced by an economy in a given year, expressed in base-year prices,
and is often referred to as "constant-price," "inflation-corrected" GDP or "constant dollar GDP."
Unlike nominal GDP, real GDPcan account for changes in price level and provide a more
accurate figure of economic growth.

What is Per Capita GDP

A country’s Gross Domestic Product (GDP) per person is obtained by dividing its GDP for a
particular period by its average population for the year.

GDP refers to the total value of final (as opposed to interim, or work-in-progress) goods and
services produced within a country’s borders during a specific calendar period such as quarterly
or annually. While GDP is the most widely used measure of a country’s economic activity, per
capita GDP is a better indicator of the change or trend in a nation’s living standards over time,
since it adjusts for population differences between countries.

Per capita GDP serves as an informal measure of a nation’s prosperity; the ranks of the richest
nations by this metric are dominated by affluent countries with relatively small populations and
disproportionately large economies. “Per capita GDP” and “GDP per capita” are synonymous

The International Monetary Fund (IMF) produces per capita GDP figures for countries, regions
and groups (such as advanced economies and emerging markets) in two formats – based
on purchasing power parity (PPP) exchange rates; and based in U.S. dollars.

PPP theory essentially states that over the long term, currency exchange rates should converge
towards the rate that equalizes the price of an identical basket of goods and services in any two
countries. The “Big Mac Index,” which is calculated by dividing the price of a Big Mac burger in
one nation by its price in another nation to arrive at an “exchange rate,” is one of the most
popular manifestations of PPP theory. Simply put, PPP acknowledges that purchasing power in
a country can differ markedly, depending on whether it is denominated in US dollars or the local
currency.

PPP GDP is calculated by dividing a country’s nominal GDP in its own domestic currency by the
PPP exchange rate. For many nations, the difference between per capita GDP (PPP) and per
capita GDP (in U.S. dollars) can be huge. For example, as of October 2018, India’s per capita
GDP on a PPP basis was $7,800; however, per capita GDP in USD was $2,020. As another
example, as of October 2018, Qatar had the highest per capita GDP (PPP) globally of
$128,490, but in U.S. dollar terms, it ranked No.7 at $67,820.

Purchasing power parity (PPP) is an economic theory that compares different countries'
currencies through a "basket of goods" approach. According to this concept, two currencies are
in equilibrium or at par when a basket of goods (taking into account the exchange rate) is priced
the same in both countries. Closely related to PPP is the law of one price (LOOP), which is an
economic theory that predicts that after accounting for differences in interest rates and
exchange rates, the cost of something in country X should be the same as that in country Y in
real terms.

Gross National Product (GNP)

Gross national product (GNP) is an estimate of total value of all the final products and services
turned out in a given period by the means of production owned by a country's residents. GNP is
commonly calculated by taking the sum of personal consumption expenditures, private domestic
investment, government expenditure, net exports and any income earned by residents from
overseas investments, minus income earned within the domestic economy by foreign residents.
Net exports represent the difference between what a country exports minus any imports of
goods and services.

While GDP is the most widely followed measure of a country's economic activity, GNP is still
worth looking at because large differences between GNP and GDP may indicate that a country
is becoming more engaged in international trade, production or financial operations. Finally, real
GNP may prove to be a more useful measure, since it factors out any changes in national
income due to inflation. The real GNP takes nominal GNP measured in current prices and
adjusts for any changes in price level for goods and services included in the calculation of GNP.

What is {term}? Net National Product - NNP

Net national product (NNP) is the monetary value of finished goods and services produced by a
country's citizens, overseas and domestically, in a given period (i.e., the gross national
product (GNP) minus the amount of GNP required to purchase new goods to maintain existing
stock (i.e., depreciation).
Understanding the Capital Consumption Allowance
The capital consumption allowance is an indicator of the need to replace certain assets and
resources to maintain a specified level of national productivity. It is divided into two
categories: physical capital and human capital.

Physical capital can include real estate, machinery or any other tangible resource used in the
production of goods and services aside from the human element. Human capital covers the
skills, knowledge and abilities of a workforce to produce goods and services as well as the
necessary training or education that may be required to maintain production standards. Physical
capital experiences depreciation based on physical wear and tear while human capital
experiences depreciation based on workforce turnover.

Net National Product and Environmental Economics

The NNP has particular usefulness for the field of environmental economics. The NNP is a
model associated with the depletion of natural resources, and it may be used to determine
whether certain activities are sustainable within a particular environment.

What is Gross National Product (GNP) Deflator

Gross national product deflator is a economic metric that accounts for the effects of inflation in
the current year's gross national product by converting its output to a level relative to a base
period. The GNP deflator is calculated with the following formula:

GNP Deflator=Nominal GNP/Real GNP*100

BREAKING DOWN Gross National Product (GNP) Deflator

The Gross National Product deflator provides an alternative to the Consumer Price Index
(CPI). The CPI is based upon a basket of goods and services while the GNP deflator
incorporates all of the final goods produced by an economy. This allows the GNP to more
accurately capture the effects of inflation since it's not limited to a smaller subset of goods.

What is Gross National Income (GNI)?

Gross national income is the sum of a nation's gross domestic product and the net income it
receives from overseas.

Explaining Gross National Income (GNI)

Like Gross Domestic Product (GDP), gross national income (GNI) is a measure of a country's
income. However, GNI includes net income received from abroad, while GDP only counts
income received from domestic sources.