GNP vs National Income

Introduction

Economists and government officials frequently use the terms National Income and Gross National Product (GNP). These terms are used in assessing the effectiveness of economic policies and also in monitoring progress of these policies. The national income concept was initially introduced in the 1930’s because of lack of thorough economic data which made it difficult for the US government to come up with policies of fighting times of great depression. When the United States entered World War II, there was a rising need of data which could be used for planning war and thus in 1942; annual GNP estimates were brought about for complementing the national income concept. The objective of these estimates was to elucidate the manner in which income was produced, received and also spent by the various economic sectors.

What is National Income?

The total value added by every resident producer including taxes relating to the product which are not included in output valuation together with the primary income net receipts from abroad such as employee compensation and property income is referred to as national income. It is the total sum of income from residents of an economy for a specified period. It is equal to Gross Domestic Product (GDP) together with primary receivable income from other parts of the world minus primary payable income by resident units to non- residents. Professor Marshall, a prominent economist, says that national income is a summation of all services and physical goods produced by utilizing the country’s natural resources with the help of capital and labor. Moreover, net income from overseas is also included here. Consequently, national income refers to the summation of all services offered and goods produced and overseas net income.

What is Gross National Product?

Gross National Product or GNP is an index calculating economic growth and measures the market value of services and goods that are produced for end use. It is the total market value for services and goods that are produced in a country in a particular time period. GNP measures the current output of economic activities in a certain economy. The basis of the assumption is that all things should be kept equal; a high GNP leads to high standards of living.

How to Measure GNP and National Income

The main difference between national income and gross national product depends on how the measurements are taken and basis of determining these measurements. Total economic growth of a country is measured by National Income which also considers the taxes and income earned internationally as well as at a domestic level while Gross National Product just measures the taxes and income earned by the citizens domestically.

Indirect Taxes on Business

National Income includes gross private investments, expenditure on personal consumption, net income from assets from abroad, government expenditure consumption and gross export of goods and services after netting indirect taxes on businesses and gross imports of services and goods. It is the same as GNP except that while GNP is being calculated, indirect taxes on businesses are not netted off.

Product Development Measurement and Interest Payments Determination

Interest payments from other international countries are also determined differently. Nevertheless, most countries use these terms interchangeably so that borrowing power of another country can be defined and which makes it hard to understand the difference in these two measures.

Conclusion

As such, the paramount difference between GNP and national income is that national income includes value of services and products produced by a country in a calendar year together with interest payments and dividends from other countries in a certain year. GNP represents the market value of all products and services produced by a country through the property or labour supplied by its citizens.