GDP and GNP
Anonas, Aquino, Gayanelo, Taylo
What is GDP?

Gross Domestic Product (GDP)’s technical definition is
the total value of the production and consumption of all
the goods and services of the country.
How is GDP computed?

GDP can be solved using the formula:
GDP = Consumer Spending (C) + Investment (I) +
Government Spending (G) + (Exports (X) - Imports (M))
Explanation of Formula

Consumer spending is the sum of expenditures by
households on durable goods, nondurable goods, and
services. Examples include clothing, food, and health care.

Investment is the sum of expenditures on capital
equipment, inventories, and structures. Examples include
machinery, unsold products, and housing.
Explanation of Formula

Government spending is the sum of expenditures by all
government bodies on goods and services. Examples
include naval ships and salaries to government employees.

Net exports equals the difference between spending on
domestic goods by foreigners and spending on foreign
goods by domestic residents. In other words, net exports
describes the difference between exports and imports.
What does GDP indicate?

This number is important because it gives an indication of
how successfully society is addressing the scarcity
problem.

A larger gross domestic product, there are more goods
and services that can be used to satisfy unlimited wants
and needs.
What is excluded in GDP?





Intermediate goods
Transfer payments
Home Production
Pollution/environmental damage
Illegal Goods
Types of GDP

Nominal GDP is the sum value of all produced goods and
services at current prices.

Real GDP is the sum value of all produced goods and
services at constant prices (price from a specified base year)

By keeping the prices constant in the computation of real GDP,
it is possible to compare the economic growth from one year
to the next in terms of production of goods and services
rather than the market value of these goods and services.

*GDP deflator: is the ratio of nominal GDP to real GDP
for a given year minus 1. The GDP deflator illustrates how
much of the change in the GDP from a base year is reliant
on changes in the price level. While Real GDP captures
changes in quantities and Nominal GDP captures both
changes in prices and changes in quantities, the GDP
deflator captures changes in the price level.
Is GDP an effective indicator?

GDP can show a country’s production, but it is not a
reliable indicator for a country’s welfare or well-being.
What is GNP?

Gross National Product (GNP)’s technical definition is the
combined value of all the final goods and services
produced in a country during an accounting year, including
net factor income from foreign countries.
How is GNP computed?

GNP can be solved using the formula:
GNP = GDP + Net factor income from abroad (difference
between income earned in foreign countries by residents
of a country and income earned by foreign nationals
domestically).
Explanation of Formula


GNP includes the final value of goods and services
produced by the residents of a country, without
considering their geographical location.
Based on this definition, net income from abroad is
necessary since in order to focus only on a specific
country, income from foreign residents must be
subtracted.
What does GNP indicate?

GNP helps to measure the contribution of residents of a
country to the flow of goods and services within and
outside the national territory.
What is excluded in GNP?

Similar to that of GDP (household work and illegal
goods/services, etc.)
Is GNP a good indicator?

It is not an effective indicator for a country’s welfare.
GDP vs. GNP
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GDP is the sum value of all goods and services
produced within a country.
GNP is the sum value of all goods and services produced
by permanent residents of a country regardless of their
location.
GDP of a particular country, production by foreigners
within that country is counted and production by
nationals outside of that country is not counted.
For GNP, production by foreigners within a particular
country is not counted and production by nationals
outside of that country is counted.
GDP vs. GNP


GDP is the value of goods and services produced within a
country.
GNP is the value of goods and services produced by
citizens of a country.
GDP
GNP
Definition:
An estimated value of the total
worth of a country’s production and
services, calculated over the course
on one year
GDP (+) total capital gains from
overseas investment (-) income
earned by foreign nationals
domestically
Stands for:
Gross Domestic Product
Gross National Product
Formula for Calculation:
GDP = consumption + investment
+ (government spending) +
(exports − imports)
GNP = GDP + NR (Net income
from assets abroad (Net Income
Receipts))
Layman Usage:
Total value of products & Services
produced within the territorial
boundary of a country
Total value of Goods and Services
produced by all nationals of a
country (whether within or outside
the country)
Application (Context in which
these terms are used):
To see the strength of a country’s
local economy
To see how the nationals of a
country are doing economically