Gross National Product (GNP) refers to the sum of goods and services produced by a nation’s residents and enterprises within a time frame. In this case, whether the production was done somewhere or not is irrelevant. It measures a country’s total economic output by including all the earnings from its people and businesses. Even if they operate outside the country, they are added to the GNP.
How Gross National Product Works
GNP is obtained by summing up personal consumption, business investments, government spending, and net exports. It also adds the income that residents receive from foreign investments. But it deducts the income that foreign residents receive in the nation. Net exports are found by subtracting imports from exports, indicating the balance of trade.
Advantages of Measuring GNP
Following are some of the reasons why GNP matters:
- Economic Strength: It measures a nation’s overall economic performance by the total income of its people and companies.
- International Trade Influence: In contrast to GDP, GNP also considers funds from foreign investments, reflecting how much a nation gains from international trade.
- Real versus Nominal GNP: Real GNP accounts for price changes, reflecting more clearly economic growth than nominal GNP, which is at current prices.
- GDP/GNP Comparison: Comparing both GDP and GNP can reveal the extent of wealth derived from within a nation and from outside.
Conclusion
Gross National Product is a crucial indicator of the economic activities of the nation and it makes us aware of a nation’s overall earning, including the foreign income. It gives us a clear idea of how the economy of a country is dealing with the world. Keeping track of the GNP of a country can help businesses make informed decisions regarding investments.