Which two measures are commonly used to gauge economic growth?

• A. GDP and GNP
• B. GDP and CPI
• C. GNP and PPI
• D. CPI and PPI

Answer: (A)

Economic growth is measured by the total value of what an economy produces over a period. The two most commonly used measures are GDP and GNP. GDP, gross domestic product, counts the total value of all final goods and services produced within a country’s borders during a period, regardless of who owns the production factors. GNP, gross national product, adjusts that by including the income residents earn abroad and excluding the income foreigners earn domestically, so it reflects the output attributable to the country’s residents, no matter where it’s produced. GDP is the standard focus because it shows where production actually happens, while GNP provides a broader view of residents’ income from all sources. The other options pair price indices—consumer price index and producer price index—which track changes in price levels rather than overall output, so they aren’t measures of economic growth.