What is Gross National Product (GNP)? Definition, Components

  • Post last modified:28 January 2021
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Gross National Product (GNP) Definition

Gross National Product (GNP) can be defined as a measure of country’s income which includes market value of all products and services that are produced in a particular year by a country.

What is National Income?

The labour and capital of a country, acting on its natural resources, produce annually a certain net aggregate of commodities, material and immaterial, including services of all kindsand net income due on account of foreign investments must be added in. This is the true net National income or Revenue of the country or the national dividend.Alfred Marshall

In other words, national income can be defined as combined factor income arising from the current production of goods and services in a country.It reflects the overall performance of an economy; represents the standard of living of people in the economy; helps in determining the contribution of different sectors in the economy; and so on.

There are a number of measures used for the estimation of national income of an economy. However, the most important measure of national income is Gross National Product (GNP). Let us understand the concept of GNP in detail.

Also Read: What is Business Cycles


What is Gross National Product (GNP)?

GNP can be defined as the market value of all products and services that are produced in a particular year by a country. In other words, it is a measure of a country’s economic performance.

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It estimates the output generated by a country’s organisations located domestically or abroad. Therefore, it can be said that national income is the measure of the current output of economic activity of the country.

In GNP, the word gross indicates total national product including depreciation. Depreciation indicates a decrease in the value of an asset with time. It is also called consumption of fixed capital.

GNP is calculated as:

GDP + Net factor from abroad = GNP

Where,
GDP is Gross Domestic Produc

In the calculation of GNP, the following aspects are included:

  • Consumer goods and services
  • Gross private domestic income
  • Goods and services produced by the government
  • Net income from abroad

To calculate GNP accurately, complete knowledge of its components is required. Figure shows the components of GNP:

Components of Gross National Product (GNP)

Let us discuss these components of GNP in detail:

  1. Government expenditure
  2. Consumption expenditure
  3. Investment expenditure
  4. Exports
  5. Imports
Components of gnp
Components of gnp

Government expenditure

It can be defined as the amount spent by a government. Here, expenditure incurred at levels, (from local levels to federal levels) is taken into consideration. The government indulge in various types of expenditures, such as purchase of goods and services, money transfers, and investments.

Consumption expenditure

It can be defined as the amount spent by households for consuming goods and services. Consumption expenditure is incurred to satisfy needs and wants.

Investment expenditure

It can be defined as the amount spent by the business sector on final goods and services. Investment expenditure mainly includes purchase of productive capital goods.

Exports

These can be defined as the amount produced by a country for other nations. Exports include goods and services

Imports

These are opposite of exports. Imports can be referred to the amount of goods and services received from other nations.

Also Read: Inflation in Economics


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