GDP calculation methods and GNP are necessary for analysis and assessment of the economic situation of the state. A little bit about what it is.
Key economic gauges
Gross national product (GNP) and gross domestic product (GDP) are the main economic indicators. They are necessary for understanding, analyzing the economic course of the state. One of the tasks of their consideration is the prevention of crisis phenomena.
Gross national product is the sum of the final prices of goods produced both domestically and abroad. The methods for calculating GNP are different, but we will discuss them below. To determine GDP, accounting for domestic production is taken.
For example, a factory for the production of brake discs for automobiles supplies its products to an automobile plant. They are put on cars and sold, laying the price of components in the cost of goods. For the main economic indicators the amount from the sale of cars is taken. If our factory produces the same wheels as spare parts for the market, then in this case, the amount from the sale goes into accounting for both GDP and GNP. This is done for the objectivity of measuring economic indicators.
We hope that the concept of GDP and GNP has now become clearer. The methods for calculating these economic meters will be discussed below.
Value added
In the Soviet editions of economic theory, this concept was called conditionally pure production. Methods of calculating GNP and GDP are based on this indicator.
Value added is the value created by a particular enterprise. This indicator is inextricably linked with the definition of cost. It is formed from wages, profits, depreciation and is not directly dependent on external factors. Raw materials, delivery and other expenses that leave the company are included in the cost of goods. The amount that is formed in excess of it is value added.
Value Added Example
A milk processing company purchases raw materials from third-party suppliers and makes cheese out of it. For 1 kg of the finished product takes 5 liters. The price is 30 rubles per liter of milk. Thus, the cost of 1 kg of cheese is 150 rubles. Including electricity, transportation, this amount increased by 15 percent. Ultimately, the company pays about 180 rubles for the production of one kilogram of the finished product. This is the cost. Further, the price that goes above this amount is value added. This is not profit; it will be a mistake to identify them. Value added includes increasing the price of depreciation, labor, advertising, etc. Profit is the amount of income minus expenses.
GNP: concept, calculation methods
Gross national product is not territorially limited, unlike GDP. Production can be located in any country in the world. The main thing is that the owners should be tax residents of the state in which we want to know GNP. It is considered the main indicator of the well-being of society, although GDP rather speaks more about the healthy economic situation within the state.
Methods of calculating GNP should exclude so-called non-production transactions. These are transfer transactions (benefits, pensions, expenses, etc.), transactions with securities. The purchase and sale of used items is also not taken into account. This is understandable, because it is impossible to objectively calculate the state of the economy if people sell the same product to each other.
Cost calculation
There are various methods for calculating GNP. Calculation of expenses is one of them.
For an objective assessment of the economic indicator, all expenses for the production of goods are summarized.These include:
• Personal consumer spending. They are divided into durable goods (electrical appliances, transport, etc.), consumer goods (food, small industrial goods), as well as the acquisition of services (medicine, education).
• Domestic investment of enterprises. The acquisition of equipment, all types of construction work, as well as changes in stocks (an increase in stocks takes into account this method, a decrease, on the contrary, takes away).
• State procurements. This does not include government transfers.
• Net exports. It is calculated by the formula export minus import.
Method for calculating GNP by revenue stream
It is calculated as the previous method, only, on the contrary, it does not take into account the amount of expenses, but the amount of income from the creation of final products and services.
Based on the following elements:
• Depreciation deductions. This is the purchase of equipment, other investment goods that are out of order or worn out during the production process.
• Indirect taxes. These include sales taxes, excise taxes, fees for licensed activities, customs duties, property taxes.
• Wage. It also includes deductions of entrepreneurs on social insurance, in a pension fund, etc.
• Rent.
• Interest.
• Dividends.
• Income taxes.
• Income from individual investments.
• Retained earnings of corporations.
Nominal and real economic indicators
GNP (the concept, methods of calculating real economic indicators and their difference from the nominal ones) is especially relevant today in our country with a strong devaluation of the national currency. Real economic indicators are more objective and truthful. They are the ones who talk about the current state of affairs in the economy. The ratings simply give a numerical value. The most effective method is settlement in hard currency. For example, in dollars. GDP and GNP in our country are calculated in rubles. This is natural, since it is this currency that is national. But with the devaluation of the ruble, economic indicators can increase dramatically when, as a real state of affairs, it may not change or, conversely, worsen. For example, the volume of all finished products was sold over the year for a billion rubles. The growth in national currency amounted to 30 percent. The nominal volume has grown. But if you translate into foreign currency and compare, then there was a fall. Now the real level of development of the country is becoming more transparent.
