ECON 1110 – Intermediate Macroeconomics
Problem Set 1
1. GDP and GNP are both widely used measures of output. However, the difference between the two lies in the
measurement relating ownership and location of production. GDP (gross DOMESTIC product) measures final
goods and services within a country’s geographical boundaries, regardless of who owns in. It includes earnings
that accrue to foreign workers or firms. GNP (gross NATIONAL product) measures final goods and services of a
nation overall, regardless of geographical location. This measurement includes profits earned from overseas
enterprises and wages earned by citizens working in foreign nations.
2. GDP Deflator: calculates the value of what is actually produced given fixed baseyear prices (holds prices
constant and allows quantities to change from year to year.
CPI: measures price changes f