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.

Gross Domestic Product Meaning

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Gross National Product Meaning

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GDP and GNP Formula

GDP Formula:

• 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:

GNP = GDP + (Net income earned from abroad)

• 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?

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