GDP vs. GNP: What's the Difference? - Deepstash
GDP vs. GNP: What's the Difference?

GDP vs. GNP: What's the Difference?

Curated from: investopedia.com

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Gross Domestic Product (GDP)

Gross Domestic Product (GDP)

  • This is the most basic indicator of the overall market value of a nation's finished domestic goods and services and the country's health and size.
  • There are two types of GDP: real and nominal. The former is the economic output after inflation is factored in while the latter does not take inflation into account.
  • The GDP is important because it gives us an idea of whether the economy of the country is growing or contracting.

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GDP: Component Overview

In order to calculate the GDP you must add all of these components:

  • Consumer spending: this is the value of the consumption of the goods and services of the country's households; this is the largest part of the GDP
  • Government spending: ALL consumptions, investments, and payments made by the government for current use
  • Capital spending of businesses: Expenditure on purchases of fixed assets and unsold stock by private businesses
  • Net exports: represents the country's balance of trade

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Gross National Product (GNP)

  • This is the metric used to measure a country's economic output that is produced by all the citizens of a country regardless of their location.
  • It represents how its nationals are contributing to the country's economy.
  • In order to calculate the GNP, you must add the same components above along with the net income by domestic residents and businesses from overseas investments, then subtract it from the net income earned by foreign residents and businesses from domestic investment.

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