(a) Define Gross National Product (GNP). (b) Describe the three methods of measuring national income.

Answer Details

(a) Gross National Product (GNP). GNP is the total money value of all final goods and services produced by the nationals (citizens and resident-owned factors) of a country in a given year, whether they are located at home or abroad. It equals Gross Domestic Product (GDP) plus net factor income from abroad: \( GNP = GDP + (\text{income earned by nationals abroad} - \text{income earned by foreigners at home}) \).

(b) Three methods of measuring national income.

• The output (product) method: add up the money value of all final goods and services produced by every sector of the economy in the year, taking care to use only value added at each stage to avoid double counting.
• The income method: add up all incomes earned by the factors of production for their part in producing the year's output, i.e. wages and salaries, rent, interest and profits.
• The expenditure method: add up all spending on the final goods and services produced: consumption \( (C) \), investment \( (I) \), government spending \( (G) \) and net exports \( (X - M) \), giving \( \text{National income} = C + I + G + (X - M) \).

In principle all three give the same total, because one person's expenditure is another's income and both equal the value of output.

Examination reminder: guard against double counting in the output method by summing only value added or the value of final goods, not intermediate goods.