Gross National Product, Definition, Nominal GNP and Real GNP

Gross National Product (GNP) is total value of goods & services produced by a country's residents, both domestically and abroad, within a specific time period. Read all about Nominal GNP and Real GNP.

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Gross National Product (GNP)

Introducing the Gross National Product (GNP), an essential economic indicator that captures the total value of a nation’s economic output. It offers valuable insights into a country’s economic performance, reflecting the combined efforts of its residents, both within and outside its borders. GNP encompasses various factors like consumption, investment, government expenditure, net exports, and net income, providing a comprehensive view of a nation’s economic vitality.

Read about: Concept of GDP, GNP, NNP and NDP

Types of Gross National Product

There are two types of Gross National Product (GNP):

GNP at Factor Cost	GNP at Market Price
It measures the total value of all final goods and services produced by the residents of a country, regardless of their location, after deducting any taxes on production and adding subsidies.	It refers to the total value of all final goods and services produced by the residents of a country, regardless of their location, including any taxes on production but excluding subsidies.

Read about: NRI Deposits

GNP Calculation

GNP (Gross National Product) calculation involves considering only the final goods and services to avoid double counting of intermediate goods. The factors taken into account for calculating GNP for a nation include consumption expenditure, investment, government expenditure, net exports (exports minus imports), and net income.

The formula for calculating GNP is expressed as follows:

GNP = Consumption Expenditure + Investment + Government Expenditure + Net Exports + Net Income

GNP accounts for the manufacturing of various goods such as machinery, equipment, agricultural products, and vehicles, as well as services like consulting, education, and healthcare. The cost of providing services is not calculated separately, as it is included in the price of the final products.

When comparing GNP across countries, GNP per capita is often used. However, a challenge arises when individuals hold dual citizenship, as their income is counted in the GNP of each respective country, potentially leading to double counting.

Read about: FERA and FEMA

Importance of GNP

GNP (Gross National Product) holds significant importance as an economic indicator, guiding economists in addressing critical issues like poverty and Inflation. Here are the key points highlighting the importance of GNP:

Reliable Measure for Individual Income

GNP provides a reliable measure of income per person, irrespective of their location. This aspect makes it a valuable tool for assessing the economic well-being of individuals and households, enabling a more accurate understanding of living standards and income distribution.

Complementary to GDP

While Gross Domestic Product (GDP) focuses on economic activities within a country’s borders, GNP takes into account the income generated by a nation’s residents, whether they are located domestically or abroad. This wider perspective offers insights into the economic contributions of a nation’s citizens worldwide.

Analysis of Balance of Payments

GNP plays a crucial role in analyzing the Balance of Payments (BoP) of a country. By considering both the inflows and outflows of income from abroad, GNP helps in understanding the financial transactions, trade imbalances, and the overall economic relationship of a nation with the rest of the world.

Comparison across Countries

GNP is utilized for cross-country comparisons, particularly in regions like the European Union, where GNI (Gross National Income) is commonly used. GNP provides a standardized measure for evaluating the economic performance and progress of different countries, facilitating international comparisons and benchmarking.

Comprehensive Economic Analysis

GNP accounts for various economic factors such as consumption, investment, government expenditure, net exports, and net income. This comprehensive approach enables economists to gain a holistic understanding of a nation’s economic activity, identify trends, evaluate policy implications, and formulate strategies for sustainable economic growth.

Read about: Capital Account Convertibility

Nominal GNP and Real GNP

Real GNP

Real GNP (Gross National Product) is a measure of economic output that takes into account changes in prices over time. It is adjusted for inflation or changes in price levels, allowing for a more accurate assessment of the true economic growth or contraction. Real GNP helps in analyzing the actual changes in production and economic activity by removing the impact of price fluctuations.

Nominal GNP

On the other hand, Nominal GNP represents the value of goods and services produced in an economy without adjusting for inflation or changes in price levels. It reflects the current market prices prevailing during a specific period. Nominal GNP provides a snapshot of the economic output based on current prices, but it does not account for changes in purchasing power or the impact of inflation.

Read about: GDP of Indian States

Gross National Product UPSC

Understanding the concept of Gross National Product (GNP) is crucial for the UPSC (Union Public Service Commission) exam preparation as it is a significant topic covered in the UPSC Syllabus. GNP is a key economic indicator that measures the total value of goods and services produced by a country’s residents, both domestically and abroad. It is essential for aspirants to grasp the concept of GNP, its calculation methods, and its implications in order to tackle questions related to national income accounting, economic development, and macroeconomic policies. A thorough understanding of GNP can be gained through UPSC Online Coaching, which provides comprehensive study materials, expert guidance, and UPSC Mock Test to assess and improve one’s knowledge.

Read about: GDP Deflator

Gross National Product (GNP) FAQs

What do you mean by gross national product (GNP)?

Gross National Product (GNP) is the total value of goods and services produced by a country's residents, both domestically and abroad, within a specific time period.

What is the difference between GDP and NDP?

The difference between GDP and NDP is that GDP (Gross Domestic Product) measures the total value of goods and services produced within a country's borders, while NDP (Net Domestic Product) adjusts GDP by subtracting depreciation or the wear and tear of capital goods.

What is difference between GNP and NNP?

The difference between GNP and NNP is that GNP includes income earned by a country's residents from abroad, while NNP (Net National Product) deducts depreciation from GNP to calculate the net value of the nation's output.

Which one is better GDP or GNP?

The choice between GDP and GNP depends on the specific context and purpose of the analysis, as they provide different perspectives on an economy's performance.

Why is NNP called national income?

NNP is called national income because it represents the net value of the nation's output after accounting for depreciation, providing a measure of the income generated by the country's productive activities.