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Difference Between GDP and GNP

GDP and GNP are two of the finest and most often used measurements of a country's economy. Check here differences between GDP and GNP, including its types and calculations.
authorImageMridula Sharma15 Oct, 2024
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Difference Between GDP and GNP

GDP and GNP: The most stated approach to estimating the national income comprises two terms, namely GDP and GNP. The gross domestic product and the Gross national product GNP.

National income indicates the value of services and products that are generated by a nation during a certain financial year. GDP represents the economic output of the completed domestic products and services produced inside a nation, whereas GNP measures all finished goods and services created by a country’s residents and firms, irrespective of their location.

Gross Domestic Product Meaning

Gross Domestic Product (GDP) refers to the total value of all the products and services produced inside the bounds of a nation for a given length, generally a year or a quarter. It is an essential metric of how healthy and productive an economy is. To quantify GDP, economists total up the consumption, investment, government expenditure, and net exports (exports minus imports) inside a country.

Gross National Product Meaning

GNP, or Gross National Product, is a statistic used to quantify a nation’s entire economic output or the total market value of all the products and services generated by the inhabitants or people of a country, in either its boundaries or outside, during a given period of time, generally a year On the other hand, economists determine GNP based on the income and profits earned by the individuals dwelling in one or firms operating out of the country, regardless of whether they work at home or overseas.

Also Check: Scope of Financial Management

GDP and GNP Formula

GDP and GNP are fundamental economic measures that provide insights into the economic performance of a country. We have provided below the formulas for GDP and GNP:

GDP Formula:

Gross Domestic Product (GDP) is an estimate of the overall economic production inside a country's boundaries. The formula for GDP is as follows: GDP = C + I + G + (X - M) Where:
  • C represents consumer spending, which includes expenditures on goods and services by households.
  • I stand for investment, encompassing spending on capital goods like machinery, buildings, and inventories.
  • G denotes government spending, including all public sector expenditures.
  • X represents exports, which are the value of goods and services sold to other countries.
  • M represents imports, which are the value of goods and services purchased from other countries.

GNP Formula:

Gross National Product (GNP) takes into account the economic output of a country's residents, both domestically and abroad. Given below is the formula of GNP:

GNP = GDP + (Net income earned from abroad)

Where:
  • GDP is the Gross Domestic Product, as estimated using the method described above.
  • Net income received from abroad comprises the money gained by a nation's citizens and companies from investments abroad minus the income earned by foreign residents as well as companies inside the country.

How to Calculate GDP and GNP?

GDP and GNP are essential for economists and policymakers in analyzing a nation's financial health and global economic impact. Here's a step-by-step method for determining GDP and GNP:

Calculating GDP (Gross Domestic Product):

  • Determine the total consumer spending (C), which comprises expenditures by households on goods and services.
  • Calculate the investment (I), which comprises spending on capital goods like machinery, buildings, and inventories.
  • Account for government spending (G), encompassing all public sector expenditures.
  • Calculate exports (X), representing the value of goods and services sold to other countries.
  • Determine imports (M), representing the value of goods and services purchased from other countries.
  • Use the formula: GDP = C + I + G + (X - M).
  • Sum up the values obtained for each component to arrive at the GDP figure.

Calculating GNP (Gross National Product):

  • First, compute the Gross Domestic Product (GDP) using the previously mentioned steps.
  • Consider the net income earned from abroad. This involves calculating the difference between income earned by the country's residents and businesses from foreign investments and the income earned by foreign residents and businesses within the country.
  • Apply the formula: GNP = GDP + (Net income earned from abroad).
  • Add the GDP value calculated earlier to the net income from abroad to obtain the GNP.

GDP and GNP Differences

While GDP and GNP share similarities, they differ in their scope and the perspectives they offer. Here's a comparison of GDP and GNP in a tabular format:
GDP and GNP Differences
Aspect GDP GNP
Definition GDP measures economic activity within a country. GNP measures economic activity by a country's residents, globally.
Scope Focuses on domestic economic activities. Considers both domestic and global economic contributions.
Components Considered Covers consumer expenditure, investments, spending by governments, exports, and imports. Adds net income earned from abroad to GDP.
Global Perspective Primarily domestic perspective. Provides a global view of a country's economic reach.
Usefulness Assesses domestic economic health and productivity. Evaluates a country's global economic contributions and citizen well-being.
Policy Implications Guides domestic policies and resource allocation. Influences international policies, trade relations, and investments.
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Difference Between GDP and GNP FAQs

What are the limitations of using GDP and GNP as economic indicators?

Limitations include not accounting for income distribution, informal economy, and non-monetary transactions.

How often are GDP and GNP calculated?

GDP is typically calculated quarterly and annually, while GNP is calculated using the same frequency.

What does a rising GDP indicate about a country's economy?

A rising GDP suggests economic growth and increased production of goods and services within a country.

What is the relevance of GNP in a global context?

GNP is crucial for measuring a country's economic contributions to the global economy and analyzing the well-being of its population internationally.

Can GDP and GNP be negative?

Yes, both GDP and GNP can be negative during economic downturns when the value of goods and services produced or income earned decreases.
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