By Gary, on January 13th, 2014
There are two very similar terms that are used to determine how strong our country is, economically. They are “GDP” and “GNP”. They are defined differently and they give you different results, using different indicators.
GDP is our Gross Domestic Product. GNP is our Gross National Product.
The GDP is defined as “The monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.” In other words, it is a formula based on the annual value of finished goods and services, within the United States.
The GDP formula is C + G + I + NX
C = all private consumption within the United States.
G = all spending by the U.S. Government.
I = all business spending on capital within the United States.
NX = U.S. Exports less U.S. Imports.
GDP is one of the oldest indicators. It measures the health of the United States. It is also used to measure our standard of living and the amount of annual inflation we are experiencing. The annual GDP is not valuable unless it is compared to historical GDP values.
GDP is further defined by this reference: GDP
This hyperlink is a very helpful, explanatory video. http://www.investopedia.com/video/play/what-is-gdp/
GNP is our GDP plus one more criteria: NFP. The GNP attempts to modify the old GDP indicator by acknowledging investments our citizens have outside of our borders and income earned by residents from overseas investments. Thus the “inclusion of goods and services, less money the economy receives for selling the same factors of production.” Some economists claim that the GNP measures how sick our economy is, not how healthy.
Therefore the formula for GNP becomes C + G + I + NX + NFP.
C = all private consumption within the United States.
G = all spending by the U.S. Government.
I = all business spending on capital within the United States.
NX = U.S. Exports less U.S. Imports.
NFP = net amount of payments that an economy pays to foreigners for inputs used in producing goods and services, less the money the economy receives for selling the same factors of production.
GNP is further discussed and explained by this hyperlink: Gross National Product
For more information on Economic Indicators please click here: Economic Indicator
