An estimate of the total value of all final goods and services produced by the means of production held by a country’s people in a particular period is called the gross national product (GNP). The GNP is one of the most important economic measures used by policymakers as it provides vital data on savings, manufacturing, employment, investments, big company production outputs, and other economic indicators.
This data is used by policymakers to create policy papers that legislators use to pass laws. The data found in GNP is used by economists to solve national issues such as poverty and inflation. GNP is linked towards another significant economic measure known as the gross domestic product (GDP), which accounts for all output created within a country’s borders, regardless of who owns the means of production.
GNP is calculated by adding residents’ investment income from overseas investments to GDP, then subtracting investment income earned by foreign residents within the country.
Private domestic investment, net exports, personal consumption expenditures, government expenditure, and any income made by locals from overseas investments, less income earned within the domestic economy by foreign residents, are frequently used to compute GNP.
With this, Y= C + I + G + X + Z is the formula for calculating the components of GNP. The following is a breakdown of the calculation:
- C stands for the Consumption Expenditure
- I stands for the Investment
- G stands for the Government Expenditure
- X stands for the Net Exports (Value of imports minus value of exports)
- Z stands for the Net Income (Net income inflow from abroad minus net income outflow to foreign countries)