The concept of gross national product (GNP) is comprehensive. It enables us to measure and analyze how much is the aggregate economic production of a country in a given period. The gross national product of a country (GNP) is defined as: “The total money value of all final goods and services produced by the residents of a country in one year period”.
Gross national product may be defined as the current market value of all final goods and services produced by the economy during an income period regardless of where the output is produced.
We should remember the following aspects of GNP.
(i) GNP is a flow concept
GNP represents a flow. It is a quantity produced per unit of time. It is the value of final goods and services produced in a country during a given period.
(ii) GNP measures the value of final output
While calculating GNP, the market value of only final goods and services produced in a year are added up. Final goods are those goods which are purchased for final use in the market.
(iii) GNP is the output produced by the citizens of a country
Gross national product is the final output of goods and services produced by the citizens and businesses of a country during a given period which is usually a year.
For example, the economic activity carried out by Bangladeshi citizens and businesses outside the country is counted in GNP.
While the income of the residents who are not Bangladeshi citizens is subtracted from GNP.
Components of Expenditures in GNP
For measuring GNP at market price, economists use the expenditure approach.
According to this approach: Four categories of expenditures are added together to measure gross national product (GNP) at market price,
- (i) Consumption
- (ii) Investment
- (iii) Government expenditure
- (iv) Net exports
These four types of expenditures are now explained in brief:
(i) Consumption Expenditure (C)
It includes all personal expenditures incurred by the citizens of a country on durable and non-durable goods in one year.
(ii) Investment (I)
It is the total expenditure incurred by firms or households on capital goods.
(iii) Government expenditures (G)
It includes all types of expenditure incurred by Federal, Provincial, and Local Councils on the purchases of goods and services such as national defense, law and order, street lighting etc.
(iv) Net Exports (X – M):
Net exports of goods and services are the value of exports minus the value of imports.
The Formula for GNP
GNP = C+I+G+(X-M)
Where:
- C = consumption expenditure
- I= investment
- G= Govt. expenditure
- X-M = Net exports