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GDP Vs. GNP
Tuesday, January 27, 2009

The gross domestic product (GDP) or gross domestic income (GDI) is one of the measures of national income and input for a given country's economy. GDP can be defined in three ways, all of which are conceptually identical.

First, it is equal to the total expenditures for all final goods and services produced within the country in a stipulated period of time (usually a 365-day year).

Second, it is equal to the sum of the value added at every stage of production (the intermediate stages) by all the industries within a country, plus taxes less subsidies on products, in the period.

Third, its equal to the sum of the income generated by production in the country in the period—that is, compensation of employees, taxes on production and imports less subsidies and gross operating surplus

The most common approach to measuring and quantifying GDP is the expenditure method:

GDP = Comsumption + Gross investment + Government spending + (Exports − Imports)

GDP = C + I + G + (X − M).

Difference between GDP and GNP:

GDP is concerned with the region in which income is generated. It is the market value of all the output produced in a nation in one year. GDP focuses on where the output is produced rather than who produced it. GDP measures all domestic production, disregarding the producing entities' nationalities.

In contrast, GNP is a measure of the value of the output produced by the "nationals" of a region. GNP focuses on who owns the production. For example, in the United States, GNP measures the value of output produced by American firms, regardless of where the firms are located.

The difference is that GNP includes net foreign income (the current account) rather than net exports and imports (the balance of trade). Put simply, GNP adds net foreign investment income compared to GDP.

Labels: Economy and Business

posted @ 9:51 AM,

2 Comments:

At January 27, 2009 at 10:43 AM, Anonymous said...: Why do most people talk of GDP and not GNP
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