GNP measures a country’s economic activity globally, while GDP only measures activity within its borders. Nominal GNP is expressed in the currency value of the year measured, while real GNP uses a common currency year. GNP includes income earned by citizens abroad and investments abroad. Nominal GNP can’t be accurately compared due to inflation, so analysts convert statistics to a reference year to remove inflation’s effect.
Gross national product (GNP) is a measure of a nation’s economic activity globally, as opposed to gross domestic product (GDP) which only measures economic activity within the borders of a specific country. Both measures can be expressed in nominal or real terms. Nominal GNP statistics are individually expressed in the currency value of the year in which economic activity is being measured by the nominal GNP statistic. Actual GNP measurements use a common currency year to express the value of a nation’s overall economic activity.
GNP represents the economic activity of a country and its citizens, not limited to the area within the country’s borders. This is done by subtracting the income that foreigners living in the country earn from the country’s GDP and adding the income earned by citizens of the country living abroad. In addition, GNP includes the money that citizens of that country make from investments abroad.
Nominal GNP is the simplest statistic to compile, because the monetary values will be for the year the analyst will calculate GNP. The problem with nominal GNP statistics is that analysts cannot accurately compare them to each other. This is due to inflation: the coin from 1987, for example, probably doesn’t have the same value as the same coin today. For this reason, comparing a country’s nominal GNP in 1987 with that of the same country in 2010 would not show the true quantitative difference in global economic activity by that country and its citizens because it is likely that inflation has changed the value of the currency.
Analysts compare nominal GNP statistics from different years to each other by converting all statistics to the monetary value of a reference year based on the known inflation rate in that country. By converting these statistics into a single year monetary value, analysts can remove the effect of inflation from the statistics. Real GDP can be expressed using the monetary value of the year the analyst chooses as the reference year.
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