Difference Between Gross Domestic Product (GDP) And Gross National Product (GNP) - Economics Notes Grade XI

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Difference Between Gross Domestic Product (GDP) And Gross National Product (GNP)

1. Gross Domestic Product. (GDP)
GDP is the sum of the money value of all final goods and services produced within the domestic territory of the country during a year. It should be noted that goods and services must be produced within the country. In order to calculate the value of GDP, all goods and services produced are multiplied by their market prices.

GDP=∑ (P X Q)
Where P= Price of goods and services.
Q= Quantity of goods and services.

In other words, GDP measures expenditures made on goods and services by consumer, businessman, government and net foreign export of a country during a year.

GDP= C + I + G + (X – M)
Where,
C= Consumption expenditure.
I= Investment expenditure.
G= Government expenditure.
X= export.
M= Import.
(X – M) = Net export.

2. Gross National Product (GNP)
GNP is the most widely used concepts among different concepts of national income. GNP is defined as the total market value of all final goods and services produced annually form a country including net factor income from abroad. Net factor income from abroad is the difference between the foreign income earned by our residents from other countries and factor income earned by foreigners from our country. The income earned by our residence from a foreign country is added and income earned by the foreign country is added and income earned by the foreigners from our country must be subtracted while measuring the GNP.

GNP= C + I + G+(X-M) +NFIA
Where, C + I + G + (X – M) = GDP

NFIA = Net factor income from abroad.

Difference Between GDP and GNP

 GDP GNP 1. It refers to the monetary value of all final goods and services produced within the domestic territory of the country. 1. It refers to the monetary value of all final goods and services produced by the normal residence of the country. 2. It includes all the final goods and services produced by both residence and non-residence within the domestic territory of the country. 2. It includes all final goods and services produced by the normal residence anywhere in the world. 3. It is domestic of narrower concept. 3. It is national or wider concepts. 4. If the net factor income from abroad is added to GDP, we get GNP. 4. If we subtract net factor income from abroad from GNP, we get GDP. 5. If the net factor income from abroad in a negative, then, GDP will be greater than GNP. 5. GNP will be greater than GDP if the net factor income from abroad is negative. 6. GDP = C + I + G + ( X – M ) 6. GNP = C + I + G + ( X – M ) + NFIA

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