Difference Between GDP and GNP

In the present day world, it is not uncommon to stumble across these two words, GDP and GNP often. GDP which stands for Gross Domestic Product.

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Finance Quiz

Test your knowledge about topics related to finance

1 / 10

Which one is/are financial assets?

bonds

machines

stocks

both a and c

2 / 10

The shares of well-established, financially strong and big companies having remarkable Record of dividends and earnings are known as:

Growth shares

Cyclical shares

Income shares

Blue chip shares

3 / 10

Earnings per share show investors the __________ earned per outstanding share of stock.

Operating Income

Income before taxes

Net Income

Income before interest and taxes

4 / 10

What is the difference between stocks and bonds?

Stocks offer guaranteed returns, bonds offer higher potential returns.

Stocks represent ownership in a company, bonds represent debt.

Stocks are high risk, bonds are low risk.

Stocks are only traded in physical form, bonds are only traded digitally.

5 / 10

Which is not a cash activity listed on the cash flow statement?

Operating activities

Investing activities

Financing activities

Purchasing activities

6 / 10

What is the difference between saving and investing?

To save means to put money where it will grow very slowly (or not at all), and to invest means to put money where it will grow much faster

To save means to put money in a vehicle that is safe, protected from loss, and has guaranteed growth, and to invest means to put money in a financial vehicle or asset that has a certain amount of risk and no guarantees of growth

To save means to put money into any kind of an account at a bank, and to invest means to put money into a brokerage account

There is no significant difference between saving and investing. The words mean essentially the same thing and can be used interchangeably

7 / 10

What is the yield curve?

A graph that plots the yield of bonds against their maturity date

A graph that plots the yield of stocks against their maturity date

A graph that plots the yield of real estate investments against their maturity date

A graph that plots the yield of savings accounts against their maturity date

8 / 10

What is the definition of a liquid asset?

An asset is liquid if you can sell it relatively quickly to a willing buyer to get your money out, although you may have to take a loss

Money you have in bonds or CDs is liquid

Your money is liquid if you can get your hands on it immediately, without incurring a loss or selling an asset

Any asset you can use as collateral for a loan is, by definition, liquid

9 / 10

What is a diversified portfolio?

A portfolio with a single investment

A portfolio with a limited number of investments

A portfolio with investments in multiple asset classes

A portfolio with investments only in the stock market

10 / 10

An 'Overdraft' is where a business is permitted to overspend on its bank account up to an agreed limit.

True

False

Your score is

GDP vs GNP

The difference between GDP and GNP is quite easy to comprehend as GDP is measured within a country’s defined boundary whereas GNP is calculated taking into report both domestic and foreign monetary activities. These two phrases have some other little differences too based on how foreign and non-residential citizen’s income is evaluated.

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GDP is the metric that’s most commonly used to measure the economic growth and present size of a country’s economy. It is the total monetary value of the finished commodities, goods, services, produced within the boundaries of a nation (domestically) over a specific time phase, mostly it’s measured yearly.

GNP, on the other hand, is the procedure to compute the monetary growth of a country that’s made by all of its citizens residing both within the country and outside the country. For instance, an Indian resident working in the United States can contribute to the country’s GNP if he has the citizenship of India.

Comparison Table

Parameters of difference	Gross Domestic Product	Gross National Product
Boundary	It is measured within the boundary of a country	It is measured both within and outside the boundaries of a country
Non-residential citizens	Non-residential citizens contribute to a country’s gross domestic product	Non-residential citizens will not contribute to a country’s Gross National Product unless they have dual citizenship
Foreign citizens	Foreign citizens income is included as a part of Gross Domestic Product if they work within the country.	Foreign citizens income is not included in a countries GNP.
Ownership	Companies\factories within a country boundary contribute to gross national product irrespective of ownership	Companies belonging to a particular country contributes to their Gross National product, irrespective of who works in it.
Formula of calculation	GDP = consumption + investment+ spending by government + exports	GNP = GDP + (money flow IN foreign countries – money going TO foreign countries)

What is GDP?

The GDP of a country is the consumption, investment, government spending and exports within a countries boundary. Non-residential citizens who send their money to their own country, contribute to the GDP of their country.

The rather simple method to calculate GDP is the sum of consumption, investment, spending by the government which also includes the other expenditures made by the government. It is one of the most important systems to calculate a country an economic activity, growth and also reflects the living standards of people of that very country.

Foreign citizens who own a company or their own industry within the territories of India also pay to the government is included in the country’s GDP. GDP is mainly of four varied types which include – Real GDP followed by nominal GDP, then comes actual GDP and finally possible GDP.

Taking a simple example, if a Miniso store is present within India, it contributes to India’s GDP while it pays taxes to the government. Also, Indian employees working in that store when spending the money inside the country contributes to GDP.

What is GNP?

The term GNP implies the accumulated amount of consumption, along with investment, exports and expenditure of the government. This includes actions both within and outside of the border of a country.

The simple words GNP is the sum of GDP and the money flowing in another foreign country (belonging to this country,) and negating the money flow to a foreign country). GNP is mainly derived from the GDP.

Based on the formula we can say that the income of foreign residents isn’t included in the country’s GNP even if they invest it within that same country. It becomes the GNP of the country they originally belong to.

Taking an example to explain this concept of GNP, if an Indian citizen lives in the United States and has citizenship of India, all earnings by him are included in the GNP of India.

Main Differences Between GDP and GNP

The gross domestic product includes the economic values of all finished goods and services that are done within the boundary of the country.
The income by non-residential citizens when sending their money into their own country promote the GDP growth of their own country. Whereas non-residential citizens do not contribute to the GNP of their own country.
Foreign citizens who work in a company present in another country, contribute to the GDP of that country. however foreign citizens income isn’t considered while calculating GNP
Industries, companies and factories present inside the country contribute to its GDP irrespective of ownership. Whereas industries, companies and factories owned by the citizens of a particular country contribute to its GDP, respective of its location.
Gross Domestic Product is calculated using the formula –

GDP = consumption + investment+ spending by government + exports.

Gross national product is measured by the formula – = GDP + (money flow IN foreign countries – money going TO foreign countries.

References

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Chara Yadav

Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.