• Generally considered to measure economic welfare
   
  
• Actually a measure of money flow between businesses and households
   
  
• Rises when money is spent coping with problems, such as
   
  
  • Health care (accidents, pollution, cancer, addiction)
     
    
  • Natural disasters (floods, hurricanes, earthquakes, tornados)
     
    
  • Commuting
     
    
• Does not include non-market activities that benefit communities and individuals, such as
   
  
  • Volunteer labor
     
    
  • Work in the home, garden

GNP is used to measure economic growth. It is generally synonymous with the health of the economy and economic progress. GNP is considered a measure of the relative success of different countries. As you can see, when using GNP as a measure, Switzerland has a fairly high standard of living, the U.S. has a slightly lower standard of living, and countries like Haiti and China are two orders of magnitude lower.

What is the GNP made up of? It is the flow of money from households to business. It can be measured as a rate of consumption, but generally it is measured as a rate of production, the flow of money from business to pay for products. It includes depreciation and taxes. It is not just a measure of market activity; it also includes an estimate of some non-market activity such as food and fuel used by farm families, rental value of owner-occupied housing, and food and clothing provided by the military.

There are a number of things that the GNP does not measure. Although it includes a few non-market activities, there are a number other non-market activities that are not included, such as charity and volunteer work. For example, suppose there was a massive wave of civic feeling and everyone in the country decided to they could afford to take 2 hours off each week--for no pay--to do volunteer work in their community. The U.S. GNP would drop by over $1000 dollars, but would we be worse off if that many volunteer hours were poured into the community?

Also not included are environmental costs and benefits, or the depletion of natural resources. The Exxon Valdez spill caused the GNP to go up. The GNP also includes expenditures for undesirable activities, such as the cost of taking care of cancer patients or victims of drunk driving. (Sources: Daly 1983)