Lecture 2. G ross national product (GNP): .
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Gross national product (GNP): If weadd receipts of factor income (wages, profit, rent and interest) and grant/aid from the rest of the world and subtract payments of factor income and grant/aid to the rest of the world from GDP then we get GNP .
GDP + Factor Payments from Abroad + aid received from Abroad - Factor Payments to Abroad - aid given to Abroad
GDP VERSUS GNP
Whereas GDP measures the total income produced domestically, GNP measures the total income earned by nationals.
Question: What are the other differences between GDP and GNP?
1) GDP Deflator
2) Consumer Price Index (CPI)
GDP Deflator= (Nominal GDP)/(Real GDP) X 100
So it is used to deflate ( by taking inflation out of) nominal GDP to yield real GDP. How ? Because
Real GDP= (Nominal GDP)/( GDP Deflator) X 100
CPI = (Total cost of a bundle of goods or service at current price)/ ( Total cost of a bundle of goods or service at base price)
Suppose a typical household consumes 30kg rice and 20 kg flour in a month. So the basket of goods is consisted of rice and flour. The quantity of rice and flour will be held constant across years. In this case
Compute the inflation rate: The inflation rate is the percentage change in the price index from the preceding period.