Difference Between GDP and GNP | Finance Strategists

Q: How is GNP calculated?

GNP is calculated by adding up the following: total personal consumption expenditures (PCE), gross private domestic investment (GDPI), total government expenditures, net exports (total value of exports minus total value of imports), total income earned by citizens from overseas investments, then subtract domestic income earned by foreign residents.

GDP vs GNP

GDP is a measure of all production activity within the borders of a country, whereas GNP is a measurement of all production activity by a country's citizens and domestic-owned businesses.

GDP Definition and Example

A country's Gross Domestic Product, or GDP, is the total monetary or market value of all the goods and services produced within that country's borders during a specified period of time.

GDP is usually calculated annually, but it can be calculated per quarter as well. The US government, for example, releases both a GDP estimate for each quarter as well as the entire year.

Because GDP provides a broad measurement of a country's production, it is often thought of as being a scorecard for a country's economic health.

Types of GDP

There are a few different types of GDP measurements:

Nominal GDP is the simplest representation of GDP. This is just the raw data before any adjustments.

GDP per Capita measures the GDP per person in a country. This metric approximates the level of prosperity in a country. A high GDP per capita generally correlates with a high standard of living.

Real GDP takes into account inflation to allow for more accurate comparisons of production over time.

GDP Growth Rate is the increase or decrease in GDP from quarter to quarter.

Balance of trade is a key element in the GDP formula. When a country sells more domestic products to foreign nations than it buys, its GDP increases. When it buys more products from foreign nations than it sells (called a trade deficit), GDP decreases.

GNP Definition and Example

A country's Gross National Product, or GNP, approximates the total value of all goods and services produced by a country's citizens and citizen-owned businesses.

For example, the United States' GNP takes into account American owned businesses operating in other countries, and excludes foreign owned businesses operating within US borders.