GDP and GNP Formula

Importance & Calculation of GNP & GDP?

1. Gross National Product statistics are used too.
2. Measure the economic activity of a country.
3. Evaluate and analyze economic growth.
4. Assess how productive a country’s factors of production are.
5. Measure the value of imported goods and resources.
6. Analyze the income earned by a country’s residents.
7. Compare the performance of different countries.
8. Develop economic policies aimed at improving GNP figures.

How can the Gross National Product (GNP) can be Measured?

Two approaches can be used to measure GNP: 

1. The Income Approach 
2. The Expenditure Approach

(1) Income Approach:

Measures the income or earnings the country receives from all its production factors (Labor, Land, Capital).

Gross National Product Formula:

GNP = Wages + Interest Income + Rental Income + Profit

GNP or National Income is the sum of:

Wages:

1. The salaries, income, or earnings that residents received for their work and labour during an entire year
2. Interest Income
3. Any income earned from holding assets or funds in Bank savings accounts:

• a. Treasury-Bills
• b. Savings Bonds
• c. Interest earned on foreign investments.

Rental Income: Any income earned from owning and renting property, Including income from renting

• a. A house
• b. Apartments
• c. Rooms
• d. Office space

Profit: Income earned from investments (e.g., dividends from stocks)

(2) The Expenditure Approach:

1. Measures the amount spent or paid (expended) on all goods and services during the year at market value or prices
2. Uses and sums up two main components: (1) Gross Domestic Product and (2) Net Income from Abroad.
3. We need to first calculate the Gross Domestic Product (GDP).
4. GDP is the value of a country’s products and services produced yearly.

Calculating the Gross Domestic Product (GDP) of a country:

There are 5 main components of GDP which are given below :

1. Private Consumption and Expenditure (households) – C
2. Investment Expenditure – I
3. Government Expenditures – G
4. Exports – X
5. Imports – M

Formula to determine the Gross National Product:

GDP = Private Consumption + Investment Expenditure + Government Expenditures + Net Export

GDP = C + I + G + (X – M)

Income from Abroad – income received by citizens from overseas business activities.

Payment to the abroad – income provided to foreign citizens from their business activities in the domestic country

The difference between GNP & GDP can be calculated as:

GNP = GDP + Net Income from Abroad

Conclusion: 

The Gross National Product (GNP) is an economic measure of the market value of all goods and services produced by a country’s residents. It is an important and widely followed statistic that indicates the strength and growth of an economy, as well as the productive use of its factors of production such as labour and capital. It can be measured using the income or expenditure approach.

We mentioned the formula of gross national income or formula for GDP and GNP to calculate gross national product at market price.

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