Understanding the concepts of GDP and GNP properly is of prime importance in the field of economics. So, let us know about the GDP vs GNP comparison in detail through this article.
Economic growth and stability of a nation can be measured by analyzing its present state with the help of some set standards, conventions and concepts which have been accepted worldwide. By making use of these concepts, we can not only know about the prosperity, but also understand factors which are creating hurdles for the growth of the nation. Gross Domestic Product (GDP) and Gross National Product (GNP) are two important concepts which we must be aware of. The comparison of the two is interesting and will help you in improving your knowledge of economics and finance.
What is GDP
GDP is nothing but the sum total of the entire value of goods as well as services produced in a nation. It can be calculated from the following three:
- Product approach – In the product approach, the GDP calculation is done by adding outputs of all kinds of enterprises.
- Income approach – In the income approach of calculation, incomes of all producers are added together.
- Expenditure approach – The consideration in the expenditure approach is that the total product value is equivalent to the money spent by the people on the product purchase.
The formula to calculate GDP has been stated below.
GDP at market price = total value of output in a financial year – intermediate consumption
The GDP is also expressed in the following manner:
GDP = {consumption + investments + government spending + (net exports – net imports)}
When we are trying to know what is GDP per capita is, we also should be aware of the two types of GDP namely: Nominal GDP and Real GDP. Nominal GDP is the sum total of the prices of products and services at the current prices, and real GDP is the sum total of the prices of products and services at constant prices.
What is GNP
Gross national product is often defined as the sum total of all the products and services in the country and the profits on overseas investments. The GNP can be calculated by the expenditure as well as the income approach method. In the expenditure approach, the investment, consumption, net exports and expenditure of the government are added up while in the income approach, the non income charges, net foreign factor income, rents, wages, interests and profits are summed.
The formula for GNP has been expressed below.
GNP = GDP + Net income from assets abroad (Net Income Receipts)
A rise in the GDP or GNP of a nation is an indicator that the country is doing extremely well on the exports front. That is why, in every budget, special emphasis is given on the exports sector. The GNP does have some accounting limitations and that is why more emphasis is given to the GDP of the nation. Having said this, GNP is still recognized as an effective tool for analyzing and measuring the economic output of the country.
Hopefully, this comparison will prove to be useful for economics students as well as those interested in understanding economic concepts. If necessary, you can consult a professional economist for further explanation.
