GNP calculation formula: definition and indicators

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:41

GNP - gross national product - is the main indicator characterizing the economic activity of any state. The main condition is that the internal resources of the country must be used, regardless of where the manufacturer is located. The formula for calculating GNP shows at what level the state is in terms of economic development.

Definition

In economic theory, it is customary to talk about the Gross National Product, as the total market value of all goods and services produced by residents and just residents for a certain period of time (per year). When calculating the GNP formula, the following nuances must be taken into account:

• the term "gross" means aggregate, which means that literally all goods and services will be summed up;
• calculation is always made in monetary terms;
• calculation does not take into account all intermediate goods or services, we are talking only about those delivered to the final consumer;
• formulacalculation of GNP does not take into account financial transactions and trade in goods that were already in use.

Methods

GNP can be viewed from three perspectives. The simplest is to collect all the goods and services produced in monetary terms and calculate how much each citizen of the state spent on them.

Of course, the data will be taken from declarations submitted by registered enterprises. The formula for calculating GNP is called distribution.

The second way is to count not income, but the cost of value added products. In the process of manufacturing goods and services, each firm incurs costs: wages, depreciation, equipment. If we add up these amounts, we will estimate the level of the economy. But raw materials are not taken into account, since they are the final product for other firms specializing in their production.

And the third method is to count only the cost of raw materials. The formula for calculating GNP is called distribution.

If you calculate GNP with these three methods, the result should be the same.

Formula for calculating GNP by expenditures

It looks like this: GNP \u003d PE + VI + GZ + E_h

Here:

PM=consumer out-of-pocket spending.

VI - total investment within the country.

GZ - government spending on purchased goods and services.

E_h - net exports.

Let's give a brief description of each of the components.

Personal consumption spending is household spending on basic commodities,which includes food and clothing, furniture, appliances, luxury goods. All services rendered of any nature are also taken into account. The only exception is real estate. It is not included in GNP.

Gross domestic investment includes the following categories:

• investment in the improvement of the production process;
• in construction;
• in stocks.

Total Ig is calculated as incremental investment per year plus depreciation costs.

Public procurement takes into account the costs of the state apparatus, including schools, hospitals, armies, government agencies. The exception is transfer payments.

Net exports is the difference between the amount of products exported and imported. If exports exceed imports, then the indicator will have a monetary value. Otherwise, the value will be negative.

Formula for calculating GNP by income

It looks like this: GNP=RFP + R + % + Pr + AO + NB

Here:

ZP - wages.

P - rent.

% - percentage.

PR - profit.

AO - depreciation.

NB - indirect taxes on business.

In economic theory, all incomes taken into account when calculating by this method are conventionally divided into two groups:

1. Income as a production component. Depending on the method of obtaining, they are divided into:

• Salary - each person receives for his work. White salaries reflect reality, but black and shady dealsworsen the values of the indicator, since they are not officially taken into account.
• Rent - the income of individuals and legal entities from the delivery of land or real estate. Only transactions officially confirmed by documents are taken into account. Everyone who does not work officially violates the procedure for calculating GNP.
• Interest is the amount of return on investment.
• Profit is the difference between business income and expenses.

2. Payments that are not related to the payment of income:

• depreciation is the amount that is charged as a percentage of the cost of production equipment for the purpose of their replacement and repair;
• indirect business taxes are a percentage of the cost that is charged additionally, regardless of the main tax. This includes: excise tax, property tax, license, customs duties.

Method of calculating GNP by value added

The formulas for calculating GNP and GDP have the same basis. Except the last method by value added. Let's deal with him.

This method takes into account only those costs incurred by the enterprise for the manufacture of the final product, except for the cost of raw materials. Raw materials are the final product of another organization: a farm or a raw material industry. For them, this is a finished product that will take into account the cost of manufacturing.

Value added includes amounts spent on:

• wages;
• depreciation;
• transport;
• advertising;
• payout percentage forloans;
• and also includes profit.

The method of calculating GNP by value added makes it possible to characterize economic activity by industry. The results indicate the degree of development of a particular industry.