He net national product is the total market value of all services and final products manufactured by the factors of production of a nation (subtracting depreciation) during a given period of time. It is related to the gross national product.
The net national product is a macroeconomic term related to the methods to measure and represent the national income. The term refers to a figure obtained by applying a standard formula to the value of the gross national product.
The objective of calculating the net national product is to obtain a national income figure, which takes into account the depreciation of the investments that occur during the period for which the gross national product is calculated.
Although the net national product is a key identity in the accounting of a country, its use in economic research is generally replaced by gross national or gross domestic product as a measure of national income, a preference that has historically been a controversial issue.
However, the net national product has been the subject of research in terms of its role as a dynamic indicator of well-being.
Index
- 1 Definition and formula
- 1.1 Formulas
- 2 Difference with GDP
- 2.1 Examples
- 3 How is it calculated?
- 4 Example
- 5 References
Definition and formula
Macroeconomics includes four main parameters for measuring the economy of a country:
- Gross Domestic Product - GDP.
- Net Domestic Product - PIN.
- Gross National Product - GNP.
- Net National Product - PNN.
These measures represent the economic performance of a country and allow it to be compared objectively with that of other countries.
"Internal"means that it includes everything that is produced within the country, nationally, regardless of who produced it, whether foreigners or residents.
"National"means that it includes everything produced by the residents (or their capital) of a country, regardless of whether the production is carried out within the country (nationally) or outside the country (internationally).
"Net"means that the gross product (both domestic and national) is subtracted from the depreciation of the capital used for production.
Gross domestic product is the monetary value of all goods and services produced within a country.
The gross national product is almost identical to the gross domestic product, except that it also includes the income obtained by citizens residing in a nation for their investments abroad.
The net domestic product is the result of the gross domestic product less the depreciation of the assets that were used to carry out that production.
When the net domestic product also includes the factor of net income abroad, it is then called the net national product.
Therefore, the net national product is the market value of all goods and services of a nation, also called gross national product less depreciation, during a period of usually one year.
Depreciation describes the devaluation of fixed capital through the attrition associated with its use in productive activities.
Formulas
The formula for the gross domestic product is: GDP = C + G + I + (EX - IM).
-"C": consumer spending.
-"G": total amount of government spending.
-"I": total capital investment of companies.
-"EX": Total exports of the country.
-"IM": total imports of the country.
The formula for the gross national product is equal to that of the gross domestic product, also including the income obtained at the international level.
The formula of the net national product is:
PNN = (market value of finished products + market value of services) - depreciation.
Alternatively, the net national product can be calculated as:
PNN = Gross National Product - Depreciation.
Similarly, the net domestic product corresponds to the gross domestic product minus depreciation.
Difference with GDP
Gross domestic product and gross national product measure the market value of all goods and services produced for final sale in an economy. The difference is how each term interprets what constitutes the economy.
GDP measures the internal levels of production in a country. It represents the monetary value of all goods and services produced within the geographical boundaries of a nation during a specific period of time.
The GNP measures the production levels of all citizens or corporations in a country that work or produce in any country.
It is important to refer to both indicators when trying to obtain an accurate description of the economic value of a given country.
The gross domestic product differs in addition to the net national product, in that it is calculated after realizing the depreciation of the gross national product.
Examples
For example, the US GNP measures the production levels of any US entity, regardless of the part of the world where it is realizing its production process, defining the economy in terms of the production of its citizens.
Therefore, it includes the income received by residents who work or invest abroad.
The GNP of a country may be greater or less than its GDP. It depends on the proportion of domestic and foreign manufacturers in a given country.
For example, China's GDP is one billion more than its GNP, due to the large number of foreign companies that manufacture in the country, while the US GNP. UU It is one billion more than its GDP, due to the large amounts of production that take place outside the country's borders.
How is it calculated?
- The value of the gross national product is determined for the selected period of time.
- The value of the depreciation of the investments is determined for the selected period of time.
- Enter the values determined in the standard formula: the net national product is equal to the gross national product minus the depreciation of the investments.
- The standard formula is applied using the values that have been identified. The resulting figure of the calculation is the net national product.
Example
Suppose that the companies, citizens and entities of the XYZ country produce billions of goods and billions of services in the country this year.
The assets used to produce these internal goods and services depreciated by one billion.
On the other hand, the capitals of the companies, citizens and resident entities of the XYZ country produce this year out of the country one billion in goods and one billion in services.
The assets used to produce these international goods and services had a depreciation of one billion.
Using the PNN formula for country XYZ:
PNN = (trillion + trillion) + (sh, 2 trillion + sh, 1 trillion) - (sh, 5 trillion + sh, 04 trillion).
It would be then:
billions of GDP + sh, 3 trillion of international income, resulting in 3 trillion GNP.
Subtracting the total depreciation of sh, 54 trillion, we obtain that the PNN =, 76 trillion.
References
- Wikipedia, the free encyclopedia (2018). Net national product. Taken from: en.wikipedia.org.
- Investing Answers (2018). Net National Product (NNP). Taken from: investinganswers.com.
- Sam N. Austin (2017). How to Calculate the Net National Product. Bizfluent Taken from: bizfluent.com.
- Editors of Encyclopaedia Britannica (2018). Gross national product. Encyclopaedia Britannica. Taken from: britannica.com.
- Tom Lutzenberger (2017). The Differences Between the GDP and the NNP. Bizfluent Taken from: bizfluent.com.
- Investopedia (2018). What is the functional difference between GDP and GNP? Taken from: investopedia.com.