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All About GDP and GNP: Which One is a Superior Measure?  

08/28/2023
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All About GDP and GNP: Which One is a Superior Measure?  

In economics, GDP and GNP play a key role in looking for the number of economic activities within a country or outside it. Both concepts play a key part in measuring the strength and size of an economy and are used in different ways. 

Let’s take a deep dive into the concept and its working.  

The Working of GPD

GDP is the expected value of the total worth of a nation’s production and services and is calculated over the course of a year. It can be said that GDP is nearly related to the geographical area nevertheless of the status of the labor force. GDP is also composed of market and nonmarket production including education and defense services offered by the government. 

According to the data from the World Bank, the USA is in the first position in terms of GDP, holding around $23 Trillion in 2021 and $20 Trillion in 2022.  

How is GDP Actually Calculated?

Measuring the GDP requires quantities of all products and services manufactured and multiplying the same by their prices, and summing the total. 

Based on the Report of Economic Analysis (BEA), the US’s GDP is computed for each year and each quarter. Additionally, around 17.88% of the total GDP is generated from the industry and service industries and around 0.96% from the agriculture industry.

All in all, real GDP is an effective way to measure and express long-term national economic performance since it uses constant dollars. Calculating GDP helps in examining economic growth and the country’s performance.         

All About GNP

GNP, on the other hand, is an estimated value of the overall worth of goods and services, by citizens of a nation, on foreign or owned land, measured over the course of a year. Simply, GNP is more related to the source of the individual that is manufacturing the goods and services. 

The concept can be better understood through an example. An American worker living in China would count towards GNP but not a Chinese citizen living in the US with a temporary visa.  

GNP is calculated by summing personal consumption expenditures, net exports, private domestic investment, government expenditure, and income earned by residents from overseas investment and subtracting income earned by foreign residents. 

Simply, adding GDP with net income and subtracting the net payment calculates the GNP. 

Until 1991, the US adopted GNP as its overall sign of economic action while most of the countries were using GDP. Under the presidency of George H. W. Bush, the US switched from GNP to GDP.   

Moreover, the US holds the second position in terms of GNP, holding $23.39 Trillion in 2021. The first position is secured by China holding $27.06 Trillion. US GNP in 2022 was around $25,454.40 Billion, offering insights into the country’s participation in the global economy.    

Conclusion

GDP and GNP measure the overall economic actions in a country over a year. GDP is the total value of the products and services produced by a country whereas GNP measures the value of goods and services generated by the citizens of a particular nation.   

Source: https://www.thecoinrepublic.com/2023/08/27/all-about-gdp-and-gnp-which-one-is-a-superior-measure/