Answer to Question #147097 in Economics for Sunil

Question

Rohan is appointed an economics’ professor in a reputed university. In his first lecture, students asked him to elaborate on Gross Domestic Product (GDP) and Gross National Product(GNP). Help Rohan to prepare his first lecture on the given topic with relevant example and highlight the differences between the two concepts.

Answer 1

Gross Domestic Product (GDP) is the central indicator of the System of National Accounts (SNA), which characterizes the value of final goods and services produced by residents of a country for a given period. GDP is measured in market prices for final consumption, that is, in prices paid by the buyer, including all trade and transport margins and taxes on products. GDP is used to characterize production results, the level of economic development, the rate of economic growth, the analysis of labor productivity in the economy, and so on.

Gross National Product is the market value of the final goods and services produced using the domestic resources of a country during a given period of time. GNP measures the value of products produced by factors of production owned by citizens of a given country, including those in other countries.

Both GDP and GNP reflect the results of activities in two spheres of the national economy, material production and services. Both of these indicators determine the value of the total volume of final production of goods and services in the economy for one year (quarter, month). The indicators are calculated in both current (current) and constant prices (prices of any base year).

The difference between GNP and GDP is as follows:

1) GDP is calculated according to the so-called territorial basis. This is the total cost of production in the spheres of material production and the sphere of services, regardless of the nationality of enterprises located in the territory of a given country;

2) GNP is defined as the market value of all final products and services produced in the economy for a year. This takes into account the annual volume of final goods and services created by the citizens of the country, both within the national territory and abroad.