To determine the state of economic well-being of a country, there are a significant number of different criteria with the help of which the country’s macroeconomic indicators are compiled. There are also those that relate to psychological, social and others. But in this article, only those that indicate the level of economic prosperity are of interest, or rather, two of them: gross domestic product and gross national product. And the main question: what is the difference between GDP and GNP? In most countries of the world, these indicators do not differ much from each other. But there is a difference between them, and within the framework of the article it is necessary to find out how much the values differ when calculating, why they are calculated and, finally, what is the meaning of these parameters, and what are these macroeconomic indicators in general.
What's happened
Gross domestic product refers to the total value of all produced material goods and services rendered that were provided and brought into a state of readiness for sale. Moreover, products made within the borders of a certain country are taken into account. This is the main difference between GDP and GNP. Counting is carried out in nominal banknotes. But conditions should be taken into account, because sometimes products can be included in GDP, and sometimes they cannot.
Example of calculating GDP
So, if there is a certain factory that produces semi-finished products and exports them abroad, then the total cost of semi-finished products produced by the enterprise will be added to the gross domestic product. But if the plant uses them in the future itself to manufacture more advanced and necessary products that will be exported, then the cost of the further product (the very final one, ready for external sales) will be added to the value of GDP. It should be said separately what real and nominal GDP/GNP are. The second means what is currently available, while the first means what it should be as a result of dividing GNP by the general price level. Quite confusing for a non-expert. The main difference that needs to be understood when studying GDP and GNP is the territorial aspect of the calculation.
What is gross national product
The gross national product is understood as the total value of material goods and services that were produced and provided by representatives of one people throughout the entire Earth. Compared to calculating gross domestic product, it is more labor-intensive and only gives a relative idea of the standard of living. It’s all because of the use of money: for example, if a person moved to another country and started business there, GNP takes into account the income that he brings to the state, but this income is brought to a completely different person, from whom his homeland does not receive direct taxes and investments in the economy . A bypass effect is possible when money earned abroad is transferred to the homeland, but even this option is not optimal from the point of view of using human potential. How GDP differs from GNP should already be clear at this stage; if not, you need to read the previous two paragraphs.
How is GDP calculated?
Gross domestic product for a certain year is calculated in this way: the market value of all products produced by a country is summed up in a certain monetary value, which is ready for sale and use abroad by the enterprise that produced it. Here we should digress and talk about the so-called positive shadow sector of the economy. Calculating the real gross national product of a country is very problematic.
Positive shadow GDP
Usually you can learn from TV screens, newspaper pages, on the radio, and on the Internet that the shadow sector is always bad. But only illiterate people can say that. Let's give an example: you have a garden of ten acres, and it was planted with potatoes, carrots, radishes, herbs and other crops. Time has passed, the time has come to harvest. Vegetables collected from plots do not openly contribute to the gross domestic product, therefore, technically, this is part of the shadow sector of the economy - the production of products without imposing taxes. But it is grown, as a rule, for one’s own consumption; it does not harm society, but can only reduce the profits of individual entrepreneurs. It is situations like this that make up the positive shadow sector of the economy. Why was this told? The fact is that in different countries of the world there have been and, perhaps, there will be more attempts to determine the boundaries of this sector and add it to the gross domestic product (or gross national product), but so far, due to the impossibility of obtaining accurate data on the volume of work, such a calculation has not been possible is underway. Measurement of GDP and GNP is carried out in local currencies for “their” investors, and in US dollars for reporting data to international ones. Conversion is carried out at the official exchange rate.
How is GNP calculated?
The gross national product is calculated based on the data provided by people who have citizenship of a certain country, or, if there is a division into nations (provided for in passports), then on the basis of the income of representatives of one nation. This calculation technique is necessary to obtain information about the state of the state-forming masses as a reason for judging the state of affairs in the power itself.
Who calculates the gross domestic product?
GDP is calculated by two organizational forms: private and public. The tax and customs services and various statistics committees help the state collect the required information. The information they collect is quite accurate. But there are a number of pitfalls here that spoil government statistics. Among them: submission of false data by managers or owners of enterprises, deliberate falsification of data by the government or its subordinate structures. In world practice, it has been noted that owners of enterprises in capitalist countries have a tendency to reduce data, and increasing indicators is of interest to managers in countries with a significant public sector, such as in China, where scandals arise over and over again about enterprises overestimating their profitability and turnover indicators.
How do private structures count?
Private structures operate using other methods. They carry out calculations based on official data, but at the same time they check the data provided by other states on the amount of turnover, check with the data of banking institutions and other private structures that have access to the required type of information, and based on a comprehensive assessment they already make their own conclusions about the size of the gross domestic product and present their subjective judgments about the correspondence of government data to the real state of affairs. The calculation of GDP and GNP is carried out by them in order to provide additional confirmation of the financial capabilities of the power, as well as as an indicator of how trustworthy the country’s government can be from the point of view of a foreign investor.
Who calculates the gross national product?
GNP is calculated using almost the same methods as GDP, but the scale of action changes. Thus, if the gross domestic product is calculated for a certain territorial unit, then when calculating the gross national product it is necessary to take into account what is relevant to the people for whom the indicator is calculated.
The concepts of GDP and GNP are not very different for most countries, even when calculated by private entities. Although for some there are still differences, and they are huge. One of these states is Tajikistan, which receives 60% of its gross domestic product from the work of economic migrants. Thus, the gross national product of this country is a multiple of GDP.
Why is GDP calculated?
There are quite a few methods for calculating gross domestic product. Initially, the state wants to know the potential of the economy in order to be able to plan the further consistent development of the state formation. Also, a comparison of gross domestic product indicators allows you to view the progression and stability of its development. That is, data is provided by which potential investors will decide whether the country meets favorable indicators for them and whether it is worth investing in a project.
GDP is based on a number of other indicators that show the overall level of living comfort, a person’s ability to realize their talents, the level of social security and many other aspects of life. One such indicator is the Human Development Index. But even if things are going badly in a country, then calculating the gross domestic product has a certain meaning: it uniquely shows the level of openness in the country, and although in moments of decline it restrains investors’ investments and causes panic among them, when growth begins it can provoke those who invests money in assets that have reached the lower level of value, and, using the snowball principle, cause economic growth. GNP and GDP indicators are valuable precisely as indicators of a country’s level of development, indicators of possible potential that can be worked with and which can be developed, converting into profit.
Why is GNP calculated?
The main purpose, which should only be mentioned, is to find potential reserves. The fact is that migrants who have left the country and are conducting economic activities in the territory of another state can transfer money to their homeland. And ideally, having saved up some money, they can return home and start their own business, creating jobs and thereby revitalizing economic life. But the problem is that although they try to take everyone into account, a rather small number returns to their homeland, so it is impossible to consider the entire potential as usable. Typically, various models take into account rates from 20 to 80 percent. Data is used to identify groups of people who are most likely to return.
Macroeconomic indicators
Analysis of a country's economy involves measuring its parameters. The measurement is carried out in natural-material and cost units. Natural indicators have precise dimensions and reflect, for example, quantitative output (in tons, meters, etc.). Cost indicators allow you to evaluate costs and output in monetary terms.
The basic indicators for macroeconomic analysis are gross national product, gross domestic product, national income, etc.
Gross National Product (GNP) is the volume of products produced using a country's resources (factors of production owned by citizens of a given country), including on the territory of other countries, calculated in monetary terms and measured in market prices over a fixed period of time (for example, years). GNP includes only the final product (in relation to which the production cycle is completed) - i.e. without re-invoicing (without the cost of materials, semi-finished products, components). GNP is a product created only using factors of production owned by a given country and its citizens. Thus, GNP also includes that part that is created abroad, but using factors owned by a given country, but does not include what is created on the territory of a given country, but using factors owned by other countries or their citizens.
GNP statistics are somewhat conditional:
· not all types of work can be reliably assessed;
· it is not customary to take into account work performed in the household (due to the impossibility of their accurate assessment);
· it is impossible to take into account the products of the shadow economy;
· it is difficult to attribute the production of a given product to a given period of time (for example, GNP cannot include a house built 5 years ago, even if this house was purchased this year).
GNP is used for international comparisons - with statistics maintained according to the System of National Accounts.
Gross Domestic Product (GDP) is the total value of the final product produced only in the territory of a given country over a certain period of time, regardless of whether the factors of production with which it was produced are owned by citizens of that country or owned by foreigners. GDP is measured at current market prices.
The following methods are used to calculate GNP:
1. Production method (value added method).
2. Calculation based on income – the “income stream” method.
3. Cost calculation (method of summing up the main types of costs, end-use method - since only the costs of the final product are taken into account).
Production method(used in statistics of the Russian Federation). In accordance with this method, GNP is calculated as the sum of the added value of all enterprises and sectors of the national economy. Value added is the difference between the value of goods produced by firms and the amount paid to other firms for intermediate goods (factors of production). It can be represented as the difference between the revenue of enterprises from the sale of products and their monetary costs for the resources used in the production of these products. In this way, it is possible to take into account the contribution of various firms and industries to the creation of GNP, as well as solve the problem of double counting. In the national economy as a whole, the sum of all added value should be equal to the cost of final goods and services. Essentially, value added breaks down into wages, profits and depreciation of fixed capital.
Calculation by income. Based on the fact that gross national product is equal to gross national income. Total income is defined as the sum of income representing the payment for the use of factors of production with the help of which the final product is produced.
GNP=GDP+net factor income from abroad.
Net factor income from abroad– the difference between the income received by citizens of a given country abroad and the income of foreigners received in the territory of a given country.
Income can be divided into main components received by the main subjects of economic activity - the state, enterprise, households. The criterion is the method of generating income. Since final incomes are the result of redistribution, the actual components of GNI are somewhat different. They can be grouped as follows:
1. Wages (compensation for the work of employees) - payment for labor resources (wages, bonuses, etc.), paid to employees by the state and entrepreneurs.
2. Corporate profit – forms as a result of redistribution:
3. State revenues (income tax);
4. Shareholder income (dividends);
5. Retained earnings (profits remaining for the enterprise).
6. Rental income (rent) - income from the involvement of land, property, capital in production, received by its owner not through personal entrepreneurial activity.
7. Interest - interest on loans provided - forms the income of the owners of money capital.
8. Income from property of the non-corporate business sector - the net income of small entrepreneurs, cooperatives, etc.
9. Indirect taxes on business - are not income, but are included in the price and therefore are part of GNP (sales tax, value added tax, land taxes, customs duties) - are transferred by producers to consumers through inclusion in the price.
Cost calculation. When using this method, the expenses of all economic agents using GNP (households, enterprises, government, foreigners - expenses on national net exports) are summed up. In fact, we are talking about the aggregate demand for produced GNP. The method of summing up the main types of costs is based on the fact that the cost of a manufactured product is equal to the sum of all costs of its creation. In this case, only final costs are taken into account, that is, the costs of producing the final product.
All expenses are divided into:
· Consumer expenditures or personal consumption expenditures (C) - personal consumption expenditures of all citizens of a country or “household expenditures on consumer goods and services.” This refers to expenses for durable goods and current consumption and services, but does not include expenses for the purchase of housing.
· Investment expenses or private gross investment (I) – non-state capital investments, including expenses for the final purchase of capital goods, investments in housing construction, investments in inventories (+/- increase in inventories/decrease in inventories). Investments – costs for new construction, purchase of new equipment.
· Government expenditures or public procurement of goods and services (G) expenses of federal, republican, local government bodies for the purchase of products and payment of hired labor (construction and maintenance of schools, roads, maintenance of the army and the state apparatus). Does not include benefits, subsidies and other social insurance payments ( government transfers) Government transfers are payments from government bodies that are not related to the movement of goods and services. There are business transfers – for example, charitable contributions.
· Net exports X n – the difference between exports and imports. When calculating GDP, it is necessary to take into account all expenses associated with the purchase of final goods and services produced in a given country, including the expenses of foreigners, that is, the cost of exports. At the same time, it is necessary to exclude from their purchases by economic agents of a given country those goods and services that were produced abroad, that is, the cost of imports. Net importer, net exporter.
The difference between the above components of GNP is based not on the natural form of the product, but on the difference between types of buyers (example: a car purchased for a company and for personal use). The exception is housing construction - it is included without division, regardless of who makes these investments - the state, a company or a household.
Gross National Income(GNI) – the difference between the value of GDP and the amount of depreciation of fixed assets of production (depreciation charges). GNI is obtained if from GNP we exclude:
· Depreciation charges (that is, an element of production costs that is subject to reimbursement). We get net national product (NNP).
· Indirect taxes (sales tax, value added tax, excise duties, taxes on monopoly activities, import duties), if a product is subsidized by the state, then that part of its price that is compensated from state funds, on the contrary, is added to GNP. Sometimes the concept is introduced net indirect taxes– indirect taxes, reduced by the amount of government subsidies. In this case, ND = NNP - net indirect taxes.
Gross national disposable income= GNP + net transfers from abroad (donations, donations, aid, etc.). Gross national disposable income is used for final consumption and national saving.
National income (NI) is divided into produced and used.
Produced ND– the entire volume of newly created value of goods and services.
Used ND= produced ND - losses from natural disasters, damage during storage, foreign trade balance.
ND is used for accumulation and consumption (usually 20% / 80%).
Personal income= ND reduced by:
· retained profits of corporations and that part of the profits that is allocated for taxes and transferred to social insurance;
increased by:
Personal disposable income= personal income - taxes on personal income.
Since the value of GNP depends on the price level, the concepts of nominal GNP and real GNP were introduced.
Nominal GNP– gross national product, which includes the cost of goods and services measured at current market prices.
Real GNP– GNP, which includes the cost of goods and services measured in so-called constant prices (base year prices).
Real GNP = nominal GNP/price index.
If the index value is less than 1, then the nominal GNP is adjusted upward, that is, inflation. If the index value is greater than 1, then the nominal GNP is adjusted downward, that is, deflation.
Consumer Price Index (CPI). The price of the consumer basket (a certain set of products purchased by a typical consumer) in the current year is divided by the price of the consumer basket in the base year.
GNP deflator– the ratio of nominal GNP to real GNP in the current period. Nominal GNP=Real GNP*GNP deflator.
Potential GNP– the volume of GNP produced under conditions of full employment.
The other side of the GNP calculation is the income calculation. The income portion of GNP includes wages, rent payments, interest and profits.
A) Remuneration for work- the largest category of income includes primarily wages. But in addition to wages themselves, this category includes many additions to wages, such as entrepreneurs' contributions to social insurance and pension funds, health care and unemployment assistance.
b) Rent payments are income received by homeowners, landowners, and in general owners of resources involved in production.
V) Percent refers to payments of monetary income from the private sector of the economy to suppliers of monetary capital and credit institutions.
G) Corporate profits breaks down into three parts. A certain part of the profit is claimed by the state, which receives this part in the form of taxes on corporate profits. The rest of the remaining profits are paid out as dividends to corporate shareholders. That part of the profits that remains after the payment of these incomes is called retained earnings of corporations. These retained corporate earnings, along with allocations for the restoration of consumed capital, are invested either immediately or in the future for the creation of new enterprises and the purchase of equipment. Thus, the real assets of the investing business increase.
But in addition to these four components, GNP includes two types of distribution of funds not related to the payment of income - depreciation and indirect taxes on business.
A) Depreciation. Deductions for the restoration of consumed capital tell us, in essence, that part of the GNP of a given year should be set aside to replace in the future the machinery and equipment consumed in the production process. That is, the entire GNP cannot be consumed as society's income without deteriorating the stock of production capacity.
b) Indirect business taxes. These taxes include general sales tax, excise taxes, property taxes, license fees, and customs duties. Thus, when sales or excise taxes are levied, the final product ends up in the hands of the consumer at the same time that the corresponding tax is imposed. Care must be taken to ensure that indirect business taxes are excluded when calculating the total income generated in the current year.
4. National accounts indicators calculated based on GNP:
Net national product (NNP) ) - this is GNP without depreciation charges, without deductions for capital consumption. NNP is a more advanced indicator of the volume of production of goods and services than GNP. NNP measures the annual output that the economy as a whole, including households, companies, government and foreigners, is able to consume without impairing future years' production capabilities.
National income serves to determine the amount of income of resource suppliers for the land, labor, capital and entrepreneurial abilities they provide, and how much it costs, in terms of resources consumed, to produce a net national product. To calculate national income, it is therefore necessary to subtract indirect business taxes from NNP.
Private and national income differ from each other in that part of the national income does not fall into the hands of persons receiving income. This portion includes social security contributions, corporate income taxes, and retained corporate earnings.
Personal income after taxes represents personal income minus individual taxes (personal income taxes, estate taxes, and inheritance taxes). After-tax income is income that those receiving it can use at their discretion. Most of this income is spent on consumer spending. The other part is used to pay interest. And finally, the third part goes to increase personal savings.
The main macroeconomic indicator and statistics of countries, as well as international organizations, such as the UN, OECD, IMF, IBRD, is ⚡ GDP ⚡. It expresses the result of the functioning of the economy over a certain period of development, characterizes the finished products and services provided. Unlike the SOP GDP indicator previously used in our statistics, it does not include the cost of consumed items of labor and, therefore, excludes re-counting. On the other hand, GDP, unlike SOP, in addition to the results of material production, includes the cost of services produced.
Thus, GDP represents the gross value of all goods and services created on the territory of a given state during a certain period minus intermediate consumption. In other words, GDP- this is the sum of added value of all divisions of the national economy. It measures the results of the activities of business entities in the economic territory of a given state, but is not intended to assess production outside the country. GDP characterizes the value created by both residents and non-residents of a given state but does not take into account the value generated by residents outside the country.
To eliminate double counting, when calculating the value of a national product, care should be taken to include only the added value created by individual production. Value added is understood as the market price of the volume of products produced minus the cost of consumed raw materials and materials purchased from suppliers. In addition, GDP also excludes non-productive transactions, which are divided into financial transactions (they include three components: first, government transfer payments; second, private transfer payments; third, securities transactions) and sales of used goods.
In the national statistics of some countries, the main macroeconomic indicator can be considered GNP (used in the American and Japanese systems). In quantitative terms, the difference between GNP and GDP is small and, as a rule, amounts to no more than 1%. Unlike GDP, GNP characterizes the value of final products created by residents in the territory of a given state and abroad, but does not include the activities of non-residents in the economic territory of this country. In short, the definition of GDP uses the territorial principle, according to which goods and services are created by internal factors of a given state, regardless of who actually owns them. The calculation of GNP is based on the national principle, when the cost of products produced by residents is taken into account, regardless of their location. The difference between GNP and GDP is called net factor income from abroad. GNP is equal to GDP plus payments from abroad by residents producing products or providing services and located outside the country, minus payments by foreign residents for the services of factors of production owned by them located within the country.
GNP and GDP are calculated at current prices for comparison with other indicators and at comparable prices to study the dynamics of the physical volume of production.
Nominal GDP(GNP) is an indicator in current prices, i.e. existing at the time of calculation.
Real GDP is GDP at constant prices, i.e. adjusted for inflation.
The ratio of the nominal indicator to the real indicator shows how much GDP has increased solely due to rising prices, and therefore characterizes the change in the general price index. Categories also apply "potential GDP" "GDP lag". Potential GDP characterizes the volume of production that can be achieved with the available factors of production: the gap between this indicator and real GDP is the GDP lag.
Methods for calculating GDP
GDP can be calculated in three ways:
- production
- distributive
- end use
The basis for calculating GDP production method lies such a microeconomic indicator as gross output. The latter represents the value of goods and services produced by economic units - residents - for a certain period. This includes the production of industrial and agricultural products in value terms, transportation of goods, the cost of construction and installation work, and the production of other industries. The cost of services includes services of wholesale and retail trade, logistics and procurement, communication services, healthcare, culture, science, public organizations, services of government bodies, defense, financial institutions, pensions, services of various organizations serving enterprises and institutions . The volume of gross output also includes some categories of goods produced but sold. These include:
- products produced by enterprises for intra-industrial consumption
- products used for the construction of buildings and the production of other fixed assets
- products and services exchanged by barter
- products and services used to pay labor in kind
- agricultural and food products produced by households for their own consumption
- other products produced by households
- imputed income from living in your own home
- imputed payment for financial intermediary services
As for ground rent, it is considered as income from property and is not included in gross output. Thus, gross output includes the entire amount of goods and services produced in the national economy.
Calculating GDP using the production method consists of taking into account the gross output of the reporting period of production units of all industries at production prices minus their value of intermediate consumption at consumption prices. Thus, GDP is the sum of the added value of all producers of goods and services of a given state. Intermediate consumption includes:
- products and material services used in the production process (purchased and own production)
- payment for intangible services
- additional expenses (travel allowance, special clothing, special food, personal protective equipment, professional training costs)
- purchase of food and drinks by hotels, cafes, restaurants, medical and educational institutions
- expenses for current repairs
- food and service for military personnel
- expenses for the purchase of military equipment
- payment for services of financial intermediaries
In accordance with distribution method GDP is the total amount of income of all economic units and the population from all types of economic activity, as well as depreciation charges. More precisely, GDP as an income stream is represented by:
- firstly, the income of the owners (i.e. the amount of wages, interest, rental payments and other property income on the property before taxes)
- secondly, state revenues in the form of various indirect taxes
- thirdly, in the income of the business sector it is necessary to take into account depreciation deductions, which go towards the purchase of investment goods
You can consider GDP as the sum of primary income (wages, profits and other income), redistributed income (interest on deposits, income from bonds, dividends, social security receipts) and depreciation charges.
In more detail, GNP as an income stream includes the following components:
- workers are, first of all, wages paid by the state and entrepreneurs to those who offer labor, plus many additions to it (employers' contributions to social insurance and to various private funds for pensions, health care and unemployment assistance).
- Profits of firms and corporations are the income that remains after deducting producer expenses for wages, rent and interest. They are used to pay taxes, dividends, and retained earnings of corporations.
- Income from unincorporated, individually or family-owned businesses and income from self-employed workers (lawyers, writers).
- Income of property owners (real estate and natural resources), i.e. rent payments.
- Interest on loan capital used in the production of GNP. Loan interest is the payment of private business income to the owners of monetary capital.
- Depreciation is an annual deduction that shows the amount of capital consumed in the production process. In addition, GNP by income includes indirect taxes, i.e. taxes on value added, on the sale of goods, excise taxes, customs duties, etc. The state receives these unearned incomes for its maintenance by increasing prices. Government subsidies are deducted from GNP.
When applying the final use method, GDP will appear as the final consumption of material goods and services, capital investments, the increase in material working capital and the balance of foreign trade operations. Thus, GDP will include four streams of expenditure:
Firstly, Consumer Expenditures These are household expenditures on non-durable and durable consumer goods, as well as expenditures on services. The letter C is used to designate the totality of these expenses.
Secondly, the state, represented by its authorities, acts as a consumer, purchasing goods and services, for example, military equipment. Government consumption expenditure is denoted by G. It is important to note the fact that government procurement excludes all government transfer payments, since this category of expenditure does not reflect an increase in current production and is simply a transfer of part of government revenue to certain categories of persons.
The sum of consumer and government purchases represents final consumption. Household final consumption expenditure includes:
- purchases of goods in the public and cooperative sectors, on the market, from private individuals and self-employed persons
- purchases of market consumer services
- rent and utility bills
- payment for household services
- purchasing vouchers to sanatoriums, holiday homes and boarding houses
- payments for services of paid medical institutions
- expenses for purchasing tickets for entertainment and entertainment events
- payment for transport and communication services, legal and financial services
- trade markup on goods purchased through consignment stores
- value of products produced by households for own consumption
Thirdly, gross private domestic investment (I). They represent the expenses of the private business sector of a given state for the increase in investment in a given year (net investment), as well as investment goods intended to reimburse consumed machinery, equipment, instruments, etc., i.e. depreciation
fourthly, Some of the goods and services produced in the state are exported outside the state (export) and consumed in other countries, so they should be added. On the other hand, imported goods and services are worth subtracting because they are produced in other systems and do not reflect national production. Thus, the fourth component is net exports, i.e. difference between exports and imports (X).
Based on the above, GDP by end use is equal to:
Calculating GDP based on different components inevitably leads to discrepancies in its quantitative estimates. Most often, the discrepancies that arise are caused by the fact that the collected statistical data do not provide an absolutely reliable reflection of the quantitative content of economic transactions. In countries with a developed statistical service, such deviations are insignificant and at the GDP level, as a rule, do not exceed 1-2%. In statistical reference books, discrepancies between the values of GDP calculated in various ways, as well as some other macroeconomic indicators, are reflected in a special column "statistical discrepancies".
GNP can be calculated using one of two methods. End use method (by cost). When calculating GNP Expenses sum up the expenses of all economic agents using GNP, households, firms, the state and foreigners (expenses on our exports). In fact we are talking about aggregate demand for produced GNP.
Total expenses can be broken down into several components:
GNP = C+ I+ G+NE,
Where C– consumption; I– investments; G – government procurement; NE– net exports.
Consumption is the totality of goods and services purchased by households.
Investments include the cost of goods purchased for future use. Investments are also divided into three groups: investments in fixed production assets; investment in housing construction; investment in inventories.
State procurements- this is the total cost of goods and services purchased by government agencies (military equipment, construction and maintenance of schools, roads, maintenance of the army and state administrative apparatus, etc.).
However, this is only part government expenditures included in the state budget. This does not include, for example, transfer payments such as social security payments and other benefits. Since these payments are made free of charge, they are taken into account as part of GNP.
Net exports reflects the results of trade with other countries, the difference in the value of exports and imports of goods and services. At equilibrium in the sphere of foreign trade, the value volumes of exports and imports are equal, and the value of net exports is zero; in this case, GNP is equal to the sum of domestic expenditures: C+I+ G.
If exports exceed imports, then the country acts as a “net exporter” on the world market, and GNP exceeds the volume of domestic expenditures.
If imports are greater than exports, then the country is a “net importer” on the world market, net exports are negative, and spending exceeds production.
This GNP equation is called basic macroeconomic identity.
Distribution method (by income)
When calculating GNP by income, all types of factor income are summed up, as well as depreciation charges and net indirect taxes on business, i.e. taxes minus subsidies. The following are usually distinguished as part of GNP: types of factor income(the criterion is the method of generating income):
– remuneration (wages, bonuses, etc.);
– income of owners (income of unincorporated enterprises, small shops, farms, partnerships, etc.);
– rental income;
– corporate profits (remaining after payment of labor and interest on the loan);
– net interest (as the difference between interest payments by firms to other sectors of the economy and interest payments received by firms from other sectors - households, the state, excluding interest payments on public debt).
As with other calculation methods, in this case there is a connection between GDP and GNP indicators: GNP = GDP + net factor income from abroad. Net factor income from abroad is equal to the difference between the income received by citizens of a given country abroad and the income of foreigners received in the territory of a given country.
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