GNP - Gross National Product

 Definition: GNP is the total market value of a country's goods and services including
investment and government spending within a given country plus any revenue made abroad
earned by residents of that country. Basically GDP is added to the net value of all revenue
earned abroad to derive the final figure as seen in the equation below.
Equation:
 GNP = GDP + net receipts (total income from abroad)
GDP - Gross Domestic Product
 Definition: The total market value of all goods and services within a country. This includes,
investments, government spending, consumer spending and any foreign exports. Imports are
not included in this calculation.
 Note: GDP is calculated based on all production within a country's border.
GDP Equation:
 GDP = consumer spending + investment + government spending + (exports − imports)

Performance of an economy is related to the level of production (of goods and services)or total
economic activity. Measures of national income and output are usedin economics to estimate
the total value of production in an economy. Thestandard measures of income and output are
Gross National Product (GNP), Gross Domestic Product (GDP), Gross National Income (GNI),
Net National Product (NNP), and Net National Income (NNI). In India, the Central Statistical
Organisation has been estimating the national income.

A country’s economic performance has been measured by indicators of national income such as
GDP or GNP. Further, measuring national income is essential for various purposes that include
projection about the future course of the economy, assisting government as the basis to design
(or redesign) suitable development policies, helping firms in forecasting future demand for their
products and facilitating international comparison.

THE DEFINITION OF NATIONAL INCOME IS:

“ National income estimate measures the volume of commodities and services turned out during
a given period counted without duplication.”

“The labour and capital of the country acting on its natural resources produce annually a certain
net aggregate of commodities, [material and immaterial, ]including services of all
kinds… This is the net annual income or revenue of the country, or the national dividend.”
Basic Concepts

Gross National Product

Gross National Product (GNP) is the total value of output (goods and services) produced and
income received in a year by domestic residents of a country. It includes profits earned from
capital invested abroad.

Gros s Domestic Product

Gross Domestic Product (GDP) is the total value of output (goods and services) produced by
the factors of production located within the country’s boundary in a year. The factors of
production may be owned by any one – citizens or foreigners.

GNP – Net income earned from abroad = GDP

Thus, GDP measures income from where it is earned rather than who owns the factors of
production.

Net National Product

Net National Product (NNP) is arrived at by making some adjustment, with regard to depreciation, in GNP. As
noted above, GNP is the total value of output produced and income received in a year by domestic residents
of a country. Over this one year period, the available plant and machinery (capital) will wear and tear and get
condemned. Such decline in the capital assets due to wear and tear is measured as ‘capital depreciation’.
NNP is arrived at by deducting value of such depreciation from GNP.

That is GNP – Depreciation = NNP

Net Domestic Product

Net domestic product (NDP) is also arrived from GDP by making adjustment with regard to
depreciation in the same way described above.

(NDP is calculated by deducting depreciation from GDP).

GDP – Depreciation = NDP

Per Capita Income

Per capita income (or) output per person is an indicator to show the living standards of people in
a country. If real PCI increases, it is considered to be an improvement in the overall living
standard of people.

PCI is arrived at by dividing the GDP by the size of population. It is also arrived by making some
adjustment with GDP.

GDP =PCI

Total number of people in a country

GDP and GNP

While GDP indicates productive capacity of an economy, GNP is a crude indicator for living
standard. The significance of the distinction between GNP and GDP depends on the nature of a
particular economy. For instance,if a country has more non-resident inflows and produces a
considerable portion of its output by multinational corporations (i.e. with the help of external
factors of production), its GNP will be higher than GDP. Otherwise the distinction will be
negligible.
Many countries have foreign firms. REMEMBER THE EXAMPLE SHEIKH SIR GAVE FRO
INFOSYS SIMILARLY ANOTHER EG IS in the case of US Ford Motors in Chennai, the income
from the car factory would be counted as Indian GDPand not as US GDP. But the amount of
profit the company sends to US will be added to their GNP. Similarly, our GNP can be arrived
by adding to our GDP the net factor income receipts from abroad for the factor inputs owned by
Indians. That is, the non-resident Indians income will be added to GDP to arrive at our GNP.

Need for the Study of National Income

A national income measure serves various purposes regarding economy, production, trade,
consumption, policy formulation, etc.

The following are some such needs.

1. To measure the size of the economy and level of country’s economic performance.
2. To trace the trend or speed of the economic growth in relation to previous year(s) as well as
to other countries.