What is meant by GDP

Gross domestic product and gross national product simply explained

Everyone has probably heard the terms “gross domestic product” and “gross national product”. But what is the difference? Basically, the gross domestic product serves as a measure of production for a country, while the gross national product aims at income levels.

However, gross domestic product (GDP) and gross national product (GNP) are interdependent. When calculating the gross national product, one generally starts from the gross domestic product.

The gross domestic product

The gross domestic product (GDP) is a measure of the economic performance of an economy over a certain period of time. It measures the total value of all goods, i.e. goods and services, which were produced within the national borders of an economy in a year and which are used for end consumption.

Goods and services that are used as inputs for the production of other goods are therefore not taken into account in GDP.

GDP is the sum of all goods that were produced in a country, regardless of whether they were produced by residents or foreigners. The gross domestic product can refer to states, but also to other administrative or geographical units, such as the European Union.

Since the gross domestic product is a measure of the economic growth of an economy, it is the most important parameter in national accounts. Typically, GDP is calculated for years and quarters.

The GDP is also used for the economic performance of a country in international comparison.

The gross national product

The gross national product (GNP) is also called gross national income (GNI). The GNP expresses the sum of all goods and services that were produced in a national economy within a year. In order to calculate the gross national product, the gross domestic product is assumed.

The GNP differs from the GDP in that the earned income and property income of residents abroad is added and the earned income and property income of foreign residents in Germany is subtracted.

Specifically, this means: when calculating the gross domestic product, the benefits and assets of residents and foreigners are recorded, while the gross national product is based only on the resident principle.

So while the gross domestic product includes all products that were created on the territory of a country, the gross domestic product includes all goods that were produced by residents, regardless of whether this production takes place abroad or domestically.

A general distinction is made between nominal and real gross national product. When calculating the nominal gross national product, all goods and services produced are included with the prices of the year of production, i.e. at current prices.

In contrast, the real gross national product is based on the prices of a certain base year. So the inflation rate is factored out. The calculation of the real GNP has the effect that an increase in the gross national product, which is due to price increases, is completely disregarded.

Since 1992, however, the Federal Statistical Office has no longer used gross national product but rather gross domestic product as a measure of growth. It is now assumed that the actual production within a country is more meaningful in terms of development dynamics than the question of who performed the service.

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