Distinguish between GDP and GNP

Gross Domestic Product (GDP) and Gross National Product (GNP) are both measures of the economic performance of a country, but they differ in terms of what they measure and how they are calculated:

1. Gross Domestic Product (GDP):

   • Definition: GDP measures the total monetary value of all goods and services produced within the borders of a country during a specific time period, typically a year or a quarter.
   • Focus: GDP focuses on the economic activity that occurs within a country's borders, regardless of whether the production is carried out by domestic or foreign entities.
   • Calculation: GDP is calculated by adding up the value added at each stage of production within the country, including consumption, investment, government spending, and net exports (exports minus imports).
   • Formula: GDP = Consumption + Investment + Government Spending + (Exports - Imports)
   • Example: If a French-owned car manufacturer produces cars in the United States, the value of those cars would be included in the US GDP because they were produced within US borders.

2. Gross National Product (GNP):

   • Definition: GNP measures the total monetary value of all goods and services produced by a country's residents, whether within the country's borders or abroad, during a specific time period.
   • Focus: GNP focuses on the economic output attributable to the citizens and businesses of a country, regardless of where they are located geographically.
   • Calculation: GNP is calculated by adding up the value added by the country's residents, whether they are located within the country or abroad. This includes domestic production by residents as well as production carried out by residents abroad.
   • Formula: GNP = GDP + Net income earned from assets abroad
   • Example: If a US-owned company produces goods in Germany, the value of those goods would be included in the US GNP because they were produced by US residents, even though the production occurred abroad.

In summary, GDP measures the total value of goods and services produced within a country's borders, while GNP measures the total value of goods and services produced by a country's residents, whether domestically or abroad. GDP is more focused on domestic economic activity, while GNP reflects the total economic output attributable to a country's citizens and businesses, regardless of location.