GDP is the acronym for Gross Domestic Product and refers to the income accumulated by a country from sales of goods and services in a given period, which is usually a quarter, a semester or a year.
Income is calculated based on what is generated by natural and legal persons who live within the country, regardless of their nationality or country of origin of the company.
GNP is the acronym for Gross National Product, a macroeconomic value to measure the income generated by the sale of goods and services made by natural and legal persons that live in the country, regardless of their nationality or the origin of the company.
| Gross Domestic Product (GDP) | Gross National Product (GNP) | |
|---|---|---|
| Definition | Index that measures the income generated within a country from the sale of its goods and services. | Index that measures the income generated by residents of a country from the sale of their goods and services. |
| Source of income | Within the country. | Outside the country. |
| Types |
| |
| Examples | The income generated by the oil exploitation of a state company. | The income generated by professionals abroad. |
Index
What is GDP? (Gross domestic product)
The Gross Domestic Product (GDP) is a macroeconomic variable that is used to measure the monetary value of all the products and services generated by a country during a period, generally one year. The function of this indicator is to assess the growth or decline of a country.
The GDP takes into account the income from the production of the productive factors found within the country, regardless of nationality.
For example, a French car assembler is based in Mexico. What is produced in that country will be part of its GDP, even if the company is of French origin.
There are three types of GDP:
1.PIB per cápita
Values the products and services produced by a country based on its number of inhabitants.
2.Start nominal
It is the monetary value of the products and services produced by a country at current prices, that is, at current market prices. These prices are subject to the variations (inflation or deflation) of the period studied.
3.PIB real
It is the value of the products and services generated by a country considering the inflation of the analyzed period. It allows to know if the value of a product rose because the economy is strengthening or if it is due to a price variation.
GDP deflator
It is a macroeconomic index that measures price variations as a function of GDP. Since nominal GDP takes inflation into account and real GDP does not, the GDP deflator helps correct any deviations that can arise from using GDP as a macroeconomic indicator.
How is GDP calculated?
Each of the types of Gross Domestic Product has its own formulas, as does the GDP deflator, which is key to knowing the real GDP.
Nominal GDP formulas
There are three methods for calculating nominal GDP:
- Expenditure method : consists of adding consumption (C), investment (I), public spending (G) and the value obtained after subtracting imports (Im) from exports (Ex).
The formula, then, would be:
PIB = C + I + G + (Ex – Im)
An example of GDP calculated with this method could be (in trillions of dollars):
PIB = 3.000 + 120.000 + 60.000 + (4750-2550)
PIB = 183000 + 2200
GDP = 185,200 trillion USD
- Income or income method : As its name indicates, it is about adding all the income of natural and legal persons that produce goods within a country.
The formula includes the income of the workers, the income from the income of the companies’ assets, called Gross Operating Surplus, and the value obtained after subtracting the government subsidies from the income obtained from taxes. Would:
GDP = Workers’ income + EBE + (Taxes – subsidies)
An example of GDP calculated with the income method would be (in trillions of dollars):
PIB = 14000 + 7400 + (8900-5320)
PIB = 21400+ 3580
GDP = $ 24,980 trillion
- Value added method : consists of calculating the value of all sales made by companies and production agents, called Gross Added Value, obtained after subtracting the value of intermediate consumption from the value of sales. Then:
GVA = value of sales – intermediate consumption value
This is done so that only the raw material values remain, and are not added back to the finished product.
With that value, and the value obtained after subtracting government tax subsidies, this formula remains:
GDP = GVA + (Taxes – Subsidies)
An example of GDP with the value added method would be:
PIB = 27850 + (12500 – 7400)
PIB = 27850 + 5100
GDP = $ 32.95 billion
Real GDP formula
Real GDP is calculated by dividing nominal GDP by the GDP deflator. Therefore:
START real = START / Deflactor START
An example of real GDP calculation would be (in trillions of USD)
PIB real = 519 / 2064,92
PIB real = 251 MM USD
GDP per capita formula
The formula for calculating GDP per capita takes the account of nominal GDP and is as follows:
GDP pc = GDP (nominal) / number of inhabitants.
An example of calculating GDP per capita is that of Mexico in 2018, which had a GDP of 1,221 trillion dollars and 126.2 million inhabitants. Then,
PIB pc = 1221 / 126,2
GDP pc = 9673 trillion USD.
GDP deflator formula
The GDP deflator formula requires knowing the nominal and real GDP of a country. Then:
Deflactor PIB = PIB nominal / PIB real x 100
For example, if a country’s nominal GDP in 2010 was $ 1.750 trillion, and its real GDP was $ 1.3 trillion, the calculation would be:
Deflactor PIB = 1750/1300 x 100
Deflactor PIB = 1.34 x 100
GDP deflator = 134 trillion USD
What is the GNP? (Gross national product)
The Gross National Product is a macroeconomic variable that is used to measure the monetary value of the products and services generated by the residents of a country during a period, generally one year.
Residents are all natural or legal persons living in a country, regardless of their nationality.
For example, a Mexican lecturer goes on a tour of Germany. The income it generated is part of the Mexican GNP but not of the GDP, since it corresponds to the calculation of the German GDP.
How is GNP calculated?
The formula to calculate the Gross National Product requires knowing the country’s GDP, the value of national production and the value of foreign production carried out in the country. Then,
PNB = PIB + Pn – Pex
An example of calculating Gross National Product would be (in billions of dollars)
GNI = 1221 + 934 – 693
GNI = 2155 – 693
GNP = USD 1,462 trillion.
In closed economies, in which there are no commercial links with abroad, only the Gross Domestic Product is taken as a reference.
See also:
