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Banking Awareness Notes: GDP and GNP

GDP and GNP

Today in this blog we’ll be dealing with GDP and GNP. The topic is relevant not only for RBI Grade B Exam, but might appear in several other forthcoming exams like IBPS PO, RRB PO, RRB Office Assistant, Indian Bank PO Exam, SSC etc.

The economic growth of any country is measured in terms of its increase in the capacity to produce goods and services year after year. Usually, the economic growth is measured in terms of Gross Domestic Product (GDP), and Gross National Product (GNP).

GDP

Gross Domestic Product (GDP) is the final monetary value of all the goods and services produced within the boundaries of a country in a period (quarterly or yearly) of time. To simply put it, it measures the economic output of the country over a given period of time, irrespective of the fact that who produces it.

In Gross Domestic Product, Gross refers to total market value, Domestic refers to income generated locally or within the geographical boundaries of the country, and Product refers to the goods and services.

  • It includes income generated by the residents in the country + the income earned by non-nationals in the country
  • It excludes income received by the residents of a country from abroad.
  • It includes all private and public consumption, government outlays, investments, the foreign balance of trade(exports minus imports).

i.e., GDP = Market value of everything produced within the country + Money earned by foreign nationals in the  country − Money earned by residents from abroad

Usually, it is indicated  as a comparison to the previous year. For eg., if the current GDP of India grew 7.2%, it means that the economy of India has grown by 7.2% over the last year.

How to Calculate GDP?

The formula to find GDP is-

GDP = C + I + G +  (X − M)

Where,

GDP= Gross Domestic Product

C= Consumer Spending

I= Investment

G= Government Spending

X= Export

M= Import

Consumer Spending is the purchases made by private households on durable (household appliances, cars, etc.) and non-durable goods (food, clothing, etc.) and services (like legal, educational, and health services).

Investment refers to the investment in capital, purchasing new houses, money spent/invested by businesses in their business activities, buying machineries, tools, and so on.

Government Spending refers to the purchases and investments made by the Government.

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GNP

GNP stands for Gross National Product.

It is the market value of all the goods and services produced per year by property and labor provided by the residents of a country- both within the geographical boundaries and outside. To put it simply, GNP measures the economic output of the country over a given period of time, irrespective of the fact that where the citizens of the country are located.

  • It includes income generated by the permanent residents of the country
  • It excludes income earned by foreign nationals.

i.e., GNP = Market value of everything produced within the country + Money earned by residents of the country from abroad − Money earned by foreigners in the country

Or

      GNP = GDP + Net Income from Abroad

How to calculate GNP?

Formula to calculate GNP is:

GNP = GDP + NFIA

Where, NFIA stands for Net Factor Income from Abroad

NFIA = X − M

Where,

X= Exports of Goods and Services

M= Imports of Goods and Services

GNP measure the qualitative as well as quantitative aspect of the economy.

GDP and GNP Sample questions:

(SSC FCI Assistant Grade III Exam, 2012)

Q1. The main difference between the Gross Domestic Product (GDP) and Gross National Product (GNP) is:

  1. Transfer Payments
  2. Net foreign income from Abroad
  3. Capital consumption allowance
  4. Capital gains

Answer: 2

Q2. Which of the following statements is/are correct?

  1. While calculating GNP, income generated by foreigners in a country is taken into consideration
  2. While calculating GNP, income generated by nationals of a country outside the country is taken into accounta. 1 only
    b. 2 only
    c. Both
    d. None

Answer: b

That is all from us in this blog about GDP and GNP. Hope you find the information useful.

All the best.

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