Gross National Income (GNI) – A reflection of the size and health of a country's economy
Gross Domestic Product (GDP), Gross National Product (GNP) and Gross National Income (GNI) have one thing in common that you need to remember: they all reflect the size and health of a country's economy.
An increase in any of these, when adjusted for inflation, is a sign that the economy is doing better than the previous year. If you see a capital G at the start of a three letter acronym, i.e., GDP, GNP or GNI, remember that the G stands for "Gross" and is a reflection of how a nation is doing:
"Gee my grocery (gross) store is doing well financially this year".
Here are some further details about GDP, GNP and GNI:
GDP stands for Gross Domestic Product of a nation. There are two ways to calculate this: either calculation by spending (expenditure approach) or calculation by income approach. Either should give you the same answer.
GNP stands for Gross National Product of a nation.
GNP = GDP + net income from abroad (includes dividends, interest and profit).
GNP = GDP + Income received from other countries.
GNI stands for Gross National Income of a nation.
GNI = GDP produced by nationals (citizens of the country in which they were born) whether or not they live in the country.
GNI = GDP + income received from other countries minus income flowing out of the country.
So, if a British-based company such as BP sends profits back to the UK, our GNI is enhanced, while profits flowing out of the country from a company such as Nissan to Japan will count towards Japans GNI and not the UK's.
Calculation by Spending (Expenditure Approach)
GDP = money spent by consumers + money spent by businesses in investments + money spent by government + net exports (export minus imports).
GDP = total sales of each company and each person in the country + investments made by companies buying shares + what a president or prime minister spends + things we buy from abroad - things other countries buy from us.
GDP = C + I + G + (X-M)
= consumption + investment + government + (exports - imports)
Calculating by Income Approach
GDP = wages labour + any interest + rent earned + any profits + any taxes to pay (indirect business taxes) + capital consumption allowance.
GDP = how much everyone earns from their jobs + money we earn from banks + rent + profits from businesses + taxes to government and local government + depreciation on equipment.
GDP = W + I + R + P + IBT + CCA
= wages + interest + rent + profits + taxes + depreciation.