During business degree, students come across certain terms which sound familiar to them, but they don’t know the exact meaning of it, two similar names are GDP and GNP, which are used quite often during political debates and in business talks. Expanding on what they actually stand for, GDP is Gross Domestic Product while GNP is Gross National Product. What does it actually mean and what are the differences between them will be discussed now. Gross Domestic Product is the total monetary calculation of a country on the activities of people living in that particular area. Gross National Product, on the other hand, is the complete financial calculations of the nationals of a country irrespective of their location. In GDP whatever is invested by foreigners living in that particular country is calculated but the investments made by citizens who live abroad are not accounted for. In GNP the total investments made by non-natives is not considered. The difference between them helps in finding the extent to which the country is dependent or making a foreign investment, for example if the difference is significant it means that the country is taking part in trade with other nations. The formulas to calculate both these terms are different as well for GDP the formula is total consumption + total investment + government expenditure + (the difference of exports – imports). For GNP the formula is GDP + Average income of the nationals living abroad) – Average payment of foreign assets). Another simple difference between them is that GDP helps in analyzing the formidability of local economy while GNP helps in finding how the citizens of a particular country are growing financially.
Definition of GDP
GDP is known as Gross Domestic Product and is the sign of the total economy of a country. It is defined as the total money collected after all the goods and services are completed within a time span, which usually is one year. It can also be calculated quarterly or after every year depending on the changes. Everything from total investments, the total goods consumed, the spending of the government and the difference of import export in included while calculating the GDP of a country. There are three different ways of calculating the gross domestic product which is called expenditure, output and income basis. All these processes will give the same result and if divided into segments will provide more accuracy. If the GDP is growing at a healthy rate, it results in more foreign investment because of the stability and gradual improvement in the local economy which is the sole criteria for investors who want to spend their money where they can get a good return. It shows the total economic activity that has taken place is a full document which includes the total consumption by the public and private sectors such as services and goods. Total spending of the government in case of defense, construction and education. Foreign and local investments and all the import and exports.
Definition of GNP
GNP is called Gross National Product and is a measure of total economic activity of the residents of a country. It is defined as a detailed explanation of the total value of finished goods and services of a country and its nationals. In broader terms it is the complete description of all the products and services that took place in a country and the total amount of money earned by the people which are then separated from the total income earned by the residents in the country who are not the Nationals. This measurement also includes the state citizens who are not residing in the country but contribute towards its economy. A general estimate is that a real GNP signals towards a good living standard within a country. In simple words, it is the total earning of the citizens and companies of a country minus the total income of the foreign residents and enterprises. There is a particular formula which helps in calculating the total gross national product of a country. It is usually calculated on a yearly basis especially during one budget year.
Differences in a Nutshell
- Gross Domestic Product is the total value of all the goods and services that are completed within a country while Gross National Product is the total value of all the right and services which are completed by the nationals of a particular country irrespective of their location.
- For GDP the total investment made by foreign companies and individuals is taken into consideration while GNP the investments made by non-citizens is not considered.
- For GDP the total income of the nationals who are not in the country is not counted while GNP the total revenue of all citizens irrespective of their locations is calculated.
- GDP shows the total investment made by other companies in a particular country while GNP shows investments made by local businesses in other nations.
- GDP tells how the overall economy is doing while GNP shows how the people of a country are doing economically.
Whenever you get to hear the news and listen the terms such as GDP and GNP, there is always this urge of knowing more about them. If that was the case hopefully this article would have helped in getting a clearer idea of what the terms mean and how they are used in the economy, all this for people who want more clarity on the subject.