GROSS NATIONAL PRODUCT: Terms, Definitions & Explanations                               back to GNP page

Gross National Product (GNP)- the dollar value of goods and services (goods) produced in any given year at market price (current price).

REAL GNP - A calculation that eliminates price increases (inflation) to arrive at a truer valuation of what actually is being produced within the country. This calculation uses constant dollar values.

NOMINAL GNP - The value of GNP at current prices, normally called GNP but used to differentiate between current and constant prices.

PER-CAPITA GNP - The average value of production per person in a country in a given year. Determined by dividing the total dollar value of production by the total population of the country. This is determined the same way in every country in the world that publishes statistics.

TWO COMPONENTS OF GROSS NATIONAL PRODUCT

- GROSS NATIONAL EXPENDITURES (GNE) and GROSS NATIONAL INCOME (GNI).

GROSS NATIONAL EXPENDITURES (GNE) - The dollar value spent on current goods and services during a twelve-month period. GNE has 5 sectors included in its calculation.

1. CONSUMPTION (C)- The value of all goods and services purchased by consumers.

2. INVESTMENT (I)- The value of all spending by BUSINESS.

3. GOVERNMENT (G) - The value of all spending by the GOVERNMENT.

4. EXPORTS (E)- The value of all that is produced in Canada but sold abroad.

5. IMPORTS (M)- The value of all that is produced abroad but sold in Canada.

   Net Exports is determined by subtracting imports from exports (E-M)

The following formula is used to determine GNE. GNE = C + I + G + (E - M)

GROSS NATIONAL INCOME (GNI) - The total dollar value of money earned producing, distributing and selling the goods and services produced, including profits. GNI has 6 sectors included in its calculation.

1. WAGES & SALARIES (W)- The value of all income earned in the country.

2. RENT (R)- The value of income earned through rentals.

3. INTEREST (i)- The amount of interest earned in the country in a given year.

4. PROFIT (P)- The profit realized at all stages of production throughout the country by all sectors of the economy.

5. DEPRECIATION ALLOWANCE (D)- The decrease in value of old inventory of both business & the government. This is usually just called DEPRECIATION. Depreciation occurs on the books of business and allows business to decrease the value of old or unsold inventory. i.e. used cars.

6. INDIRECT TAXES (IT)- Hidden taxes included in the price of goods such as the old Federal sales tax, excise taxes, etc. These are usually found in cigarettes, alcohol, gasoline and clothing. All other forms of taxation are called DIRECT TAXES (GST, HST, income tax) and are included as part of the GNP calculation.

The following formula is used to calculate GNI. GNI = W + R + I + P + D + IT

Since every dollar spent (GNE) equals every dollar earned (GNI), the following formula is used as a calculation for GNP.

          GNE                   =                    GNI

C  +  I  +  G  +  (E  -  M)  =  W  +  R  +  i  +  P  +  D  +  IT

   Some important exceptions when deciding what is counted and what is not part of the GNP calculation and some exceptions to the rule will be given in class.