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The Difference Between GDP and GNP
These days you will often hear the words GDP and GNP tossed around. What do these terms mean, and more importantly what are the differences between GDP vs GNP? Read on to learn more about these economic terms and how and when to use them.
With the economy the way it is today, it's becoming more important to fully understand whats being discussed both on TV and in every day conversations. Often times people toss these two terms around without fully understanding their meaning. Especially when debating or discussing economic topics it's imperative to know what you are talking about or else you risk looking like a fool or misinterpreting what the other party is saying.
GDP and GNP are the two most important, and used economic indicators when determining a country's economic output. GDP stands for Gross Domestic Product and GNP stands for Gross National Product. Both are basically a number usually given in American dollars to show the relative size of a given countries economy. Please note that GDP and GNP are not the only economic indicators out there, but they are however the most commonly used and also most commonly confused.
Below is a useful side by side comparison of the two terms, with their meanings, measurements and uses.
GNP - Gross National Product
- Definition: GNP is the total market value of a country's goods and services including investment and government spending within a given country plus any revenue made abroad earned by residents of that country. Basically GDP is added to the net value of all revenue earned abroad to derive the final figure as seen in the equation below.
- GNP = GDP + net receipts (total income from abroad)
GDP - Gross Domestic Product
- Definition: The total market value of all goods and services within a country. This includes, investments, government spending, consumer spending and any foreign exports. Imports are not included in this calculation.
- Note: GDP is calculated based on all production within a country's border.
- GDP = consumer spending + investment + government spending + (exports − imports)
Things to consider
The actual GDP and GNP numbers are not necessarily the most important stats to pay attention to. Instead what most people focus on is the percentage change in GDP and GNP. Countries like China and India are still much lower down on the total GDP and GNP standings than say the USA. However, these countries have displayed incredible growth in their GDP and GNP.
The USA currently is at the top in terms of total GDP and GNP and has had a relatively stable 2-3% average GDP growth per year since post world war 2.
As said before, GNP and GDP are not the only economic indicators and do not show the entire breadth and depth of a country's economy.
While it's true that living standards tend to move with GDP and GNP growth, living standards and GDP and GNP are fundamentally 2 different concepts.
For example GDP and GNP do not accurately show the differences between the rich and the poor. Some countries like the US and Japan have had steadily increasing gaps between the rich and the poor yet both countries are at the top of the GDP and GNP list.