What is Gross National Product (GNP) which transaction in the economy are included in GNP

The Gross National Product (GNP) is the summation of all those finally produced goods and services which the labour and capital like factors of production have produced by utilizing all the resources of the country in a year. If we represent such all aggregate output in the form of money we get GNP.

If we define GNP from market prices point of view then “GNP” is the market value of all goods and services produced in a country in a year.”

The GNP is a flow variable, because it represents the amount of goods and services produced during some particular period of time i.e. a year. If we represent the produced goods and services by Q₁, Q₂, Q₃, Q₄……..and their prices by P₁, P₂, P₃, P₄………..then the GNP of a country will be as

GNP = P₁Q₁+ P₂Q₂ + P₃Q₃ + P₄Q₄………..P_nQ_n

But the measure of GNP by this method we have to make the following cares.

1.         To ensure GNP the value final goods will be included while the value of intermediate goods or those goods which are used for preparation of final goods will not be included. Because if it is done the value of a good will be counted twice. In this situation National Income will be over estimated. Therefore either the price of final goods be included or the value added method be adopted.

2.         In the measurement of GNP the non-productive transactions will not be included. It is told that the productive transactions consist of final purchase of newly produced goods. In our economic life most of transactions are of non-productive nature. It is as:

(i) The sale and purchase of old share and securities: If any body sells or purchases the old securities no economic activity comes into being-just transfer of ownership. There to measure GNP such like transactions will not be included.

(ii) The Government Transfer Payments: If government makes the payments to the people etc without their services, they are known as transfer payments as the case of social security, unemployment allowances, persons or scholarships to the student. All such payments will not be included in National Income.

(iii) The Private Transfer Payments: In addition to government transfer payments, there are private transfer payments. Such payments consist of dowry, charity, zakat and pocket money etc, all such payments are not included in GNP because they have not been paid against productive services etc.

(iv) The Sale of used goods: If any person sells his second hand car, TV or Fridge etc, such transactions will not be included in current production. It is so because their value in GNP has already been included. If their value is re-included the national income statistics will be misleading.