Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Gross National Product (GNP)

What it is:

Gross national product (GNP) is a broad measure of a nation's total economic activity. GNP is the value of all finished goods and services produced in a country in one year by its nationals.

How it works (Example):

GNP includes income earned by citizens and companies abroad, but does not include income earned by foreigners within the country.

The figures used to assess GNP include the manufacturing of tangible goods (cars, furniture and agricultural products) and the provision of services (education, healthcare, and business services). GNP does not include the services used to produce manufactured goods because their value is included in the price of the finished product.  However, GNP does include depreciation and indirect business taxes like sales tax.

The formula for GNP is:

Consumption + Government Expenditures + Investments + Exports + Foreign Production by U.S. Companies – Domestic Production by Foreign Companies = Gross National Product

GNP can be adjusted to make valid comparisons year-to-year or among countries. For year-to-year comparisons, GNP needs to be adjusted for inflation.  For country-to-country comparisons, GNP needs to be stated on a per capita basis (i.e. GNP divided by the population of the country).

The difference between GNP and gross domestic product (GDP) is that GNP includes the value of products made by a country's citizens and companies abroad, while GDP only accounts for products made within a country's borders. However, GNP excludes the value of products made by foreign companies within the reporting country.

Why it Matters:

Due to the increasingly global nature of national economies and the interdependence of labor forces, supply chains and sales channels, the U.S. Bureau of Economic Analysis uses GDP instead of GNP as its measure of output for the United States.

GNP is still an interesting economic indicator. For example, the larger the difference between a country's GNP and GDP, the more a country is involved in international trade, finance and production.

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