Is it a good option to choose GDP over GNP in India's case? why?
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Answer:
GDP vs. GNP: An Overview
Gross domestic product (GDP) is the value of a nation's finished domestic goods and services during a specific time period. The gross national product (GNP) is the value of all finished goods and services owned by a country's residents over a period of time.
Both GDP and GNP are two of the most commonly used measures of a country's economy, both of which represent the total market value of all goods and services produced over a defined period.
There are differences between how each one defines the scope of the economy. While GDP limits its interpretation of the economy to the geographical borders of the country, GNP extends it to include the net overseas economic activities performed by its nationals. Simply put, GNP is a superset of GDP.
Explaining GDP Vs. GNP
Gross Domestic Product
Gross domestic product is the most basic indicator used to measure the overall health and size of a country's economy. It is the overall market value of the goods and services produced domestically by a country. GDP is an important figure because it gives an idea of whether the economy is growing or contracting.
The United States uses GDP as its key economic metric and has since 1991; it replaced GNP to measure economic activity because GDP was the most common measure used internationally.
Calculating GDP includes adding together private consumption or consumer spending, government spending, capital spending by businesses, and net exports—exports minus imports. Here's a brief overview of each component:
Consumption: The value of the consumption of goods and services acquired and consumed by the country’s households. This accounts for the largest part of GDP
Government Spending: All consumption, investment, and payments made by the government for current use
Capital Spending by Businesses: Spending on purchases of fixed assets and unsold stock by private businesses
Net Exports: Represents the country’s balance of trade (BOT), where a positive number bumps up the GDP as country exports more than it imports, and vice versa
Because it is subject to pressures from inflation, GDP can be broken up into two categories—real and nominal. A country's real GDP is the economic output after inflation is factored in, while nominal GDP is the output that does not take inflation into account. Nominal GDP is usually higher than real GDP because inflation is a positive number. It is used to compare different quarters in a year. The GDPs of two or more years, though, are compared using real GDP.
GDP can be used to compare the performance of two or more economies, acting as a key input for making investment decisions in a country. It also helps government draft policies to drive local economic growth.
When the GDP rises, it means the economy is growing. Conversely, if it drops, the economy shrinks and may be in trouble. But if the economy grows to the point where inflation builds up, a country may reach its full production capacity. Central banks will then step in, tightening their monetary policies to slow down growth. When interest rates rise, consumer and corporate confidence drops. During these periods, monetary policy is eased to stimulate growth.