Gross National Product

Gross National Product is the value of all goods and services produced by a country’s residents.

GNP

• Is based on the market value of goods and services
• Takes only final goods and services into consideration
• Relies on factors of production such as the country’s labor and capital
• Is measured on an annual basis

How is GNP used?

Gross National Product statistics are used to

• Measure the economic activity of a country
• Evaluate and analyze economic growth
• Assess how productive a country’s factors of production are
• Measure the value of important goods and resources
• Analyze the income earned by a country’s residents
• Compare the performance of different countries
• Develop economic policies aimed at improving GNP figures

How is GNP Measured?

Two approaches can be used to measure GNP: (1) The Income Approach (2) The Expenditure Approach

(1) Income Approach

• Measures the income or earnings received by the country’s factors of production (Labor, Land, Capital)

GNP = Wages + Interest Income + Rental Income + Profit

• GNP or National Income is the sum of
  • Wages
    • The salaries, income or earnings that residents received for their work and labor during an entire year
    • Interest Income
      • Any income earned from holding assets or funds in
        • Bank savings accounts
        • GICs
        • Treasury-Bills
        • Canada Savings Bonds
        • Interest earned on foreign investments
    • Rental Income
      • Any income earned from owning and renting property.
      • Includes income from renting
        • A house
        • Apartments
        • Rooms
        • Office space
    • Profit
      • Income earned from investments (e.g., dividends from stocks)

(2) The Expenditure Approach

• Measures the amount spent or paid (expended) on all goods and services during the year at market value or prices
• Uses and sums up two main components: (1) Gross Domestic Product and (2) Net Income from Abroad
  • We need to first calculate Gross Domestic Product (GDP)
    • GDP is the value of a country’s products and services produced in year
      • 5 main components of GDP
        • Private Consumption and Expenditure (households) – C
        • Investment Expenditure – I
        • Government Expenditures – G
        • Exports – X
        • Imports – M

GDP = Private Consumption + Investment Expenditure + Government Expenditures + Net Exports

GDP = C + I + G + (X – M)

Next, we determine Net Income from Abroad, which is composed of

• • Income from Abroad – income received by citizens from overseas business activities
  • Income to abroad – income provided to foreign citizens from their business activities in the domestic country

Using both components, we calculate GNP as

GNP = GDP + Net Income from Abroad

Conclusion

The Gross National Product (GNP) is an economic measure of the market value of all goods and services produced by a country’s residents. It is an important and widely followed statistics that indicates the strength and growth of an economy, as well as the productive use of its factors of production such as labor and capital. It can be measured using the income or expenditure approach.

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