Definition
Gross National Product (GNP) is an economic metric that represents the total value of all goods and services produced by the residents of a country, both domestically and internationally, within a specified period, usually one year. GNP includes the value of products produced by the citizens and companies located abroad but excludes the output of foreign nationals and businesses operating within the country.
Key Components:
- Domestic Production: Value of goods and services produced within the country.
- International Production: Value of goods and services produced by nationals abroad.
- Income from Abroad: Incomes earned from foreign investments and remittances.
Examples
- Example 1: A US-based multinational corporation operates a factory in Germany. The profits generated by this factory contribute to the US GNP because the factory is owned by American entities.
- Example 2: A British author’s royalties from books sold globally, including the US and Canada, are included in the UK’s GNP.
- Example 3: Money sent by Filipino workers abroad back to the Philippines is counted in the Philippines’ GNP.
Frequently Asked Questions (FAQs)
Q1: How does GNP differ from GDP?
A1: While GNP accounts for the total economic output by a country’s residents, GDP (Gross Domestic Product) includes the value of goods and services produced within the geographic boundaries of the country, regardless of the producer’s nationality.
Q2: Why is GNP important?
A2: GNP provides a broader scope of a country’s economic strength by including international economic activities involving the nation’s residents and businesses, thus offering a more comprehensive picture of national economic performance.
Q3: Can GNP be higher than GDP?
A3: Yes, GNP can be higher than GDP if a country’s nationals produce and earn significantly outside the country. Conversely, if foreigners produce more within the country, GDP will be higher than GNP.
Q4: Which measure should be used for policy-making, GNP or GDP?
A4: Both GNP and GDP are useful but serve different purposes. Policymakers may use GDP to understand the domestic economic activity better, while GNP can offer insights into the economic performance of the country’s residents, including international engagements.
Q5: How is GNP calculated?
A5: GNP is calculated as:
\[ \text{GNP} = \text{GDP} + \text{Net income from abroad (NI)} \]
- Gross Domestic Product (GDP): The total value of goods and services produced within a country’s borders in a specific time period.
- Net National Product (NNP): GNP minus the depreciation of a country’s capital goods.
- National Income: The total income earned by residents of a country, including wages, rents, interests, and profits.
Online References and Resources
Suggested Books for Further Studies
- “Macroeconomics” by N. Gregory Mankiw
- “Economics” by Paul Samuelson and William Nordhaus
- “Principles of Economics” by Robert H. Frank, Ben Bernanke, Kathryn Graddy
Fundamentals of Gross National Product (GNP): Economics Basics Quiz
### What does GNP measure?
- [ ] The total value of goods and services produced in the domestic economy.
- [x] The total value of goods and services produced by a country's residents.
- [ ] The GDP after accounting for taxes.
- [ ] The employment rate.
> **Explanation:** GNP measures the economic output produced by a country's residents, including incomes from abroad.
### Which of the following is included in GNP but not in GDP?
- [x] Earnings from residents' overseas investments.
- [ ] Value of cars produced domestically.
- [ ] Salaries of public servants.
- [ ] Domestic retail sales.
> **Explanation:** GNP includes earnings from the overseas investments of residents, which are not counted in GDP.
### GNP represents the economic activities of which of the following?
- [x] A country's residents, regardless of their location.
- [ ] Individuals within a country's geographical boundaries only.
- [ ] Foreign companies within the country's boundaries.
- [ ] None of the above.
> **Explanation:** GNP captures the economic activities of a country's residents, even if these activities take place outside the country.
### If a US company generates profits in France, which economic measure includes these profits?
- [x] GNP of the United States.
- [ ] GDP of France.
- [ ] GDP of the United States.
- [ ] GNP of France.
> **Explanation:** The profits generated by a US company in France will be included in the GNP of the United States.
### What happens if there are fixed international profits generated by the country's residents?
- [ ] GNP decreases.
- [x] GNP increases.
- [ ] GDP is unaffected.
- [ ] GDP increases.
> **Explanation:** GNP increases because it counts the profits generated by residents from international sources.
### What distinguishes GNP from Net National Product (NNP)?
- [ ] NNP includes taxes.
- [ ] GNP subtracts depreciation.
- [x] GNP does not account for depreciation.
- [ ] NNP includes international aid.
> **Explanation:** GNP does not account for depreciation of capital goods, while NNP does.
### What does "net income from abroad" in the GNP formula signify?
- [ ] Total domestic investment value.
- [ ] Only profits from local businesses.
- [x] Income earned by residents from overseas investments minus income earned by foreign residents domestically.
- [ ] All worldwide transactions.
> **Explanation:** "Net income from abroad" in the GNP formula signifies the income earned by residents from overseas investments minus the income earned by foreign residents within the domestic economy.
### Which concept shows the production by foreigners within a country's borders?
- [ ] Domestic expenditure.
- [ ] National income.
- [ ] GNP.
- [x] GDP.
> **Explanation:** GDP shows the production by anyone, including foreigners, within a country's borders.
### Is it possible for GNP to be lower than GDP?
- [ ] Never.
- [x] Yes, if income from foreign sources is less than the income earned by foreigners domestically.
- [ ] Only in developing countries.
- [ ] Only in stable economies.
> **Explanation:** If the income earned from foreign sources is less than the income earned by foreigners domestically, GNP can be lower than GDP.
### Which term captures the broader economic output, GNP or GDP?
- [ ] GDP, because it includes all domestic production.
- [x] GNP, because it includes international earnings and production.
- [ ] Both are equal in scope.
- [ ] GDP, because it is standardized internationally.
> **Explanation:** GNP captures the broader economic output by including incomes earned from international sources and production activities by a country’s residents.
Thank you for learning about Gross National Product (GNP) and engaging in our challenging sample exam quiz questions. Continue expanding your knowledge in macroeconomics!
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