GROSS NATIONAL PRODUCT

(GNP)
Sam D. Fuego

Gross National Product

(GNP)
Is the total market value of all-final goods and
services produced annually in an economy.
Implicit in this definition is that we are
measuring value in terms of current market
prices. We refer to current-dollar GNP as
nominal GNP, the total market value of all-final
goods and services produced annually in an
economy, evaluated at current market prices.

GNP is measured over a period of

time. As such, it is a flow variable,
as opposed to stock variable, which
is measured at one specific point in
time.

Final Goods vs.

Intermediate Goods
Why does GNP only measure final
goods --- goods sold to their ultimate
users? Why not include intermediate
goods --- goods that are input in the
production of other goods --- as well?
Roger A. Arnold. Economics.

What GNP Omits

1. Nonmarket Goods and Services.
Tasks which are performed without a market
transaction, such as mowing your own lawn
rather than hiring someone.

 2. Illegal Goods and Services and Underground

Activities.
Illegal goods are not counted in GNP, because
there is no record of them. Similarly, cash-only
transactions, the bread-and-butter of the
underground economy, are not recorded; and
while the government tries to estimate their
value, they are not accurately counted in GNP.

 3. Sales of Used Goods.

GNP measures only current output. Goods
produced last year although sold in the market
this year are not included.

 4. Financial Transactions and Transfer

Payments.
Transactions that involve trading existing
assets, such as stock purchases and
government transfer payments, are not
included in GNP.

 5. Leisure.
Leisure is a good which is
consumed by individuals just as
cars, and housing are consumed.
However, because leisure, in and of
itself, is not purchased from anyone,
it is not included in GNP.

 6. Social Costs.
GNP measures the market value of
new production, but ignores any
social costs (e.g. pollution) which
may be associated with production.

Standard of Living
While GNP measures the total value
of final output, it tells us nothing
about how that output is distributed.
As such, it is a fairly poor measure
of economic well being, or standard
of living.

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