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There are at least two or three different ways of calculating these numbers. The expenditure approach determines aggregate demand, or Gross National Expenditure, by summing consumption, investment, government expenditure and net exports. On the other hand, the income approach and the closely related output approach can be seen as the summation of consumption, savings and taxation. The three methods must yield the same results because the total expenditures on goods and services (GNE) must by definition be equal to the value of the goods and services produced (GNP) which must be equal to the total income paid to the factors that produced these goods and services (GNI). (GNP=GNI=GNE by definition)
In actual fact, there will be minor differences in the results obtained from the various methods due to changes in inventory levels. This is because goods in inventory have been produced (and therefore included in GDP), but not yet sold (and therefore not yet included in GNE). Similar timing issues can also cause a slight discrepancy between the value of goods produced (GDP) and the payments to the factors that produced the goods (particularly if inputs are purchased on credit).
Gross National Product (GNP) is the total value of final goods and services produced in a year by domestically owned factors of production.
Final goods are that are ultimately consumed rather than used in the production of another good. For example, a car sold to a consumer is a final good; the components such as tires sold to the car manufacturer are not; they are intermediate good s used to make the final good. The same tires, if sold to a consumer, would be a final good. Only final goods are included when measuring national income. If intermediate goods were included too, this would lead to double counting; for example, the value of the tires would be counted once when they are sold to the car manufacturer, and again when the car is sold to the consumer.
Only newly produced goods are counted. Transactions in existing goods, such as second-hand cars, are not included, as these do not involve the production of new goods.
Income is counted as part of GNP according to who owns the factors of production rather than where the production takes place. For example, in the case of a German-owned car factory operating in the US, the profits from the factory would be counted as part of German GNP rather than US GNP because the capital used in production (the factory, machinery, etc.) is German owned. The wages of the American workers would be part of US GNP, while the wage s of any German workers on the site would be part of German GNP.| Country | GDP ($ mill) | |
|---|---|---|
| 1 | United States | 10,881,609 |
| 2 | China | 4,326,444 |
| 3 | Japan | 2,400,655 |
| 4 | Germany | 1,794,858 |
| 5 | United Kingdom | 1,747,973 |
| 6 | France | 1,465,895 |
| 7 | Italy | 1,409,852 |
| 8 | Canada | 836,100 |
| 9 | South Korea | 834,390 |
| 10 | Spain | 626,080 |
| Source: World Bank [1] | ||
Gross Domestic Product (GDP) is the total value of final goods and services produced within a country's borders in a year.
GDP counts income according to where it is earned rather than who owns the factors of production. In the above example, all of the income from the car factory would be counted as US GDP rather than German GDP.
To convert from GNP to GDP you must subtract factor income receipts from foreigners that correspond to goods and services produced abroad using factor inputs supplied by domestic sources. To convert from GDP to GNP you must add factor input payments to foreigners that correspond to goods and services produced in the domestic country using the factor inputs supplied by foreigners.
GDP is a better measure of the state of production in the short term. GNP is better when analysing sources and uses of income.