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GDP (Gross Domestic Product)
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GNP (Gross National Product)
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Measure of Economic Activity
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| Measures the value of goods and services produced within a country's borders. [ By Citizens + Foreign Nationals] |
Measures the value of goods and services produced by a country's citizens, both domestically and abroad.[ By Citizens Only] |
| Utilization in Global Economies |
| Most commonly used by global economies. The United States abandoned the use of GNP in 1991, adopting GDP as its measure to compare itself with other economies. |
The 1993 System of National Accounts replaced the term GNP with GNI, or Gross National Income. |
| Calculation Method |
Adding together
private consumption or consumer spending,
government spending,
capital spending by businesses,
and net exports (exports minus imports). |
Adding together
consumption,
government spending,
capital spending by businesses,
net exports,
and net income by domestic residents and businesses from overseas investments. |
| Basic Indicator of Economic Health |
| GDP is the most basic indicator to measure the overall health and size of a country's economy. |
GNP is another metric used to measure a country's economic output. |
| Nominal GDP vs. Real GDP |
| Nominal GDP is generally used to compare different quarters in the same year because inflation will usually not be a significant factor. |
Examples of GDP and GNP: A quick look at the absolute GDP and GNP numbers of a particular country over the past two years indicates they mostly move in sync. |
| Impact on Economy |
| When the GDP rises, it means the economy is growing. Conversely, if it drops, the economy is shrinking and may be in trouble. |
For instance, many American businesses, entrepreneurs, service providers, and individuals who operate across the globe have helped the nation secure a positive net inflow from overseas economic activities and assets. |
| Comparision in International Trade |
| GDP is often used to compare the performance of two or more economies in international trade agreements and negotiations. |
GNP represents how a country's nationals are contributing to the country's economy, which can influence trade policies. |
| Inflation Impact |
| Real GDP accounts for inflation, providing a more accurate measure of economic growth. |
The calculation of GNP does not directly consider inflation, which can affect its interpretation. |
| Net Income from Overseas Investment |
| Net income from overseas investments is not directly factored into GDP calculations. |
GNP includes net income earned by domestic residents and businesses from overseas investments, providing a broader view of a country's economic performance. |
| Government Spending |
| Government spending is included in GDP calculations, reflecting the overall economic activity within a country's borders. |
GNP accounts for government spending by a country's citizens, regardless of location, giving insights into the contribution of nationals to the economy. |
| Foreign Trade Balance |
| Net exports are a component of GDP, indicating the balance of trade between a country and its trading partners. |
GNP considers the net income earned by domestic residents from overseas investments, which can influence a country's foreign trade balance. |
| Policy Formulation |
| GDP data is used by governments to formulate economic policies aimed at stimulating growth or managing inflation. |
GNP provides insights into the economic contribution of a country's nationals, informing policies related to taxation, investment, and trade. |
