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Grant is a practicing corporate attorney and serves as an adjunct professor at various universities.
Before the prevalence of international trade, it was relatively easy to compare the performance of national economies against one another. Japan's economy was a wholly different thing from the United States' economy, for example. But globalization, or the growing integration of business and culture across different nations, has changed all that.
Globalization has made it more difficult to assess the state of a country's economy given vast trade networks. For instance, if a Japanese company builds a plant and makes cars in the United States, which economy benefits more from the activity? Economists have devised a number of tools to help quantify economic health, and GNP (gross national product), is one of those measures.
GNP is a measure of a country's total economic activity. It is similar to GDP (gross domestic product), but with a slight adjustment meant to capture the total income of a country rather than total output. Let's explore exactly what that means.
Both GNP and GDP are used to measure a nation's economic activity, but they do so in slightly different ways. GDP is a broad figure that measures the value of all goods and services produced within a country's borders, no matter who produces the goods or provides the services. So if a Japanese company builds a plant and makes cars in the United States, the value of the cars would be included in the United States' GDP because production happened in the United States.
GNP, on the other hand, measures economic activity generated by a country's citizens or nationals irrespective of where the goods are produced. Using our same example, the value of cars produced would be included in Japan's GNP because the manufacturer is a Japanese company. As you can see then, the GDP of countries with high levels of foreign investment may be much higher than their GNP.
Now that we understand GNP, let's learn how to calculate it.
The formula for GNP is:
GNP = consumer spending + investment spending + government spending + exports + foreign production by U.S. nationals - domestic production by foreign nationals
The first three components of the formula refer to the spending of the three major components of the economy: consumers, businesses, and government. Exports are included in the formula as well because they represent goods purchased by entities outside of the country. The last two components of the formula are meant to include U.S. companies' production abroad and exclude the value of goods produced within the U.S. by foreign companies.
With the expansion of globalization, or the growing integration of business and culture across different nations, it has become increasingly important to measure countries' total economic activity. One tool for doing so is GNP (gross national product), which measures economic activity generated by a country's citizens or nationals irrespective of where the goods are produced. It's similar to, but distinct from, GDP (gross domestic product), which measures the value of all goods and services produced within a country's borders.
The formula for GNP is:
GNP = consumer spending + investment spending + government spending + exports + foreign production by U.S. nationals - domestic production by foreign nationals
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College Macroeconomics: Tutoring Solution15 chapters | 147 lessons
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