What Is GNP?

Jim B.
Jim B.
Businesswoman talking on a mobile phone
Businesswoman talking on a mobile phone

The GNP, or gross national product, is a measurement of the sum total of all of the production output amassed by the citizens of a nation in a given time period. It is closely related to the gross domestic product, or GDP, with the subtle difference being that GNP includes the production of citizens who are living in a foreign nation. As an economic indicator, GNP is used to show if an economy is growing or has become stagnant. Although it doesn't provide a complete picture of a nation's economic strength, it can be useful when measured alongside other key economic indicators.

Economists use various measurements to try and ascertain how well an economy is doing. They also have the choice to study it on a microeconomic level, which constitutes looking at the finances of individual citizens, or on a macroeconomic level, which takes a broad view of the nation's finances as a whole. The GNP is one of the key economic indicators for those choosing a macroeconomic approach.

There are two ways in which the GNP can be reached. One way is to add up all of the consumption by citizens of a certain country. The other is to measure the income acquired by the companies and citizens within that country. In either case, the gross national product puts a monetary figure on all of the products and services sold within a country in a given time.

For the most part, the GNP is practically inseparable from the GDP, or Gross Domestic Product. The difference comes in what types of production are measured. As an example, if citizens from Country A founded a company in Country B, the money earned from goods sold would be counted in the Gross National Product of Country A. That same production would count in the Gross Domestic Product of Country B. In this way, the money gained from exporting products can be properly measured.

Although it is one of the leading macroeconomic indicators, overusing GNP can lead to false interpretations. For example, a rising Gross National Product may indicate strength, but, if inflation rates in that country are rising higher than the amount of production, the economy might actually be in decline. In addition, it is difficult to compare countries of different sizes in terms of national product. One way to rectify this is to take a per capita approach, which compares the national product to the population of the country being measured.

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