GDP or GNP? What’s the difference? How is it calculated?

Gross domestic product (GDP) is the total value of all the final g/s produced in an economy/country, regardless of who owns the FoPs, in a given time period, usually one year. For example, in Switzerland, we count all firms doing business within the borders…the Swiss ones, the Canadian ones, the Thai ones, etc.

Gross national product (GNP), on the other hand, counts the value of all the final g/s produced by an economy’s/country’s owned FoPs, regardless of where they are situated. For example, we take all the Swiss owned productive assets in Switzerland, minus all the foreign ones in the country, plus all those in Germany, South Africa, China, etc.

Net national product (NNP) takes the GNP and subtracts the depreciation of all the capital in that year. Nominal GDP is the number calculated that year for GDP, whereas real GDP takes that number and adjusts it for inflation compared to a base year. When we divide the GDP by the population, we get GDP per capita, one of our (many) indicators of economic development.

How is national income measured?  Via calculating output, expenditure, and/or income, all of which should be equal.  For the output method, the total value of all g/s from each sector is added.  For the expenditure method, the spending by households (C - consumption), firms (I - investment), the government (G) and net exports (NX - exports minus imports) is added.  For the income method, all the wages, rent, interest and profit is added.  Remember, national output = national expenditure = national income!

Evaluation - What are the many limitations of national income data?