Answer to Question #82766 in Macroeconomics for Abdul

Question

What is the difference between gross domestic (GDP) and gross national product (GNP) and which is likely to be lower in developing countries? Why?

Answer 1

Gross Domestic Product is measured by the market value of goods and services produced in a time domestically. Whereas, Gross national product is the value of goods and services produced (domestically) in addition to net income inflow from abroad assets excluding net payment to foreign assets.

Formulae:

GDP = consumption + investment + government spending + (exports - imports)

GNP = GDP + net income receipts - net payment outflow to foreign assets.

In the case of developing countries, the GNP is likely to be lower in most countries because the net income receipts would likely to be less as compared to the developed country.