GNP and ways of its calculation according to the expenditure

GNP stands for Gross National Product. In general terms, GNP means the total of all business production and service sector industry in a country plus its gain on overseas investment. In some cases GNP will also be calculated by subtracting the capital gains of foreign nationals or companies earned domestically.

Calculation according to the expenditure:

This approach is to add up all expenditures on final goods and services. In fact, this approach is another way of calculating the value of final goods of the economy. This approach considers where those goods go. There are four possibilities— some final goods are consumed by individuals, some are used by firms, some are purchased by the government, and some of them go abroad.

In a two-sector economy consisting of consuming sector and producing sector, total expenditure is divided into consumption spending (symbolized by C) and investment spending (symbolized by I). ‘C’ includes expenditure on all types of goods (both durable and non-durable) and services produced and sold.

‘I’ is defined as the expenditure on newly produced capital goods acquired for the purpose of providing services in the future. It includes investment in fixed capital formation, stock building and residential housing.

Again, investment may be gross or net. Net investment is obtained by subtracting depreciation expenditure or capital consumption allowance from gross investments.

Thus,

GNP = C + I

If we now consider a three-sector economy (i.e., a closed economy) that includes governmental sector, then GNP from the national expenditure side becomes

GNP = C + I + G

G’ consists of expenditures on goods and services provided by the government. However, not all government expenditures are included in the GNP accounts. Expenditure on government transfer payments (e.g., unemployment benefit, welfare grants, interest on national debt, etc.) are excluded.

The fourth category of expenditure in a four-sector economy, i.e., an open economy, arises from international trade.

Here we will now include export (symbolized by X) and exclude imports (symbolized by M). Market value of all exportable goods should be included in national income. But market value of all imported final goods and services are to be subtracted from the GNP figure. This is because national income figures of any country must not reflect the contribution of foreign nationals.

Thus, in an open economy,

GNP = C + I + G + (X-M)

This equation is called an identity. By definition, thus, GNP equals consumption plus investment, plus government expenditures, plus net exports.

GNP and ways of its calculation according to the expenditure.

Gross national product (GNP) is a broad measure of a nation's total economic activity. GNP is the value of all finished goods and services produced in a country in one year by its nationals.

"Expenditures" is a reference to spending; Keynesian theory places extreme macroeconomic importance on the willingness for businesses, individuals and governments to spend money. Another word for spending is "demand."

The total spending, or demand, in the economy is known as aggregate demand. This is why the GDP formula is exactly the same as the formula for calculating aggregate demand: Y = C + I + G + NX

According to this approach, all output must go toward one of four sources. These sources are private individual consumers (C), business (I), governments (G) and foreigners (net exports, or NX).

The expenditure approach is different than the income approach, which instead focuses on the income received by the factors of production: labor, capital, land and entrepreneurs.

Government budget: essence and its revenue part.

Government budgeting is one of the major processes by which the use of public resources are planned and controlled to attain certain objectives. Budgetary actions of the government affect production, size, and distribution of income and utilization of human and material resources of the country. So the government should prepare a different budget of the various situations is the economy. Public expenditure should be varied according to the requirement and urgencies of the business situations. Governments, however, also have recourse to raising funds through the sale of their goods and services, and, because government budgets seldom balance, through borrowing.

The two basic elements of any budget are the revenues and expenses. In the case of the government, revenues are derived primarily from taxes.

In deciding how to raise enough money to finance its expenditure program, a government faces a large number of different considerations. First, the tax system is complex, containing many different taxes, each often having a complex structure. Perhaps the major consideration is the effects on behaviour that particular tax rates will cause.

Income tax has a graduated structure whereby no tax is paid on the first segment of income and then each subsequent segment is taxed at a higher rate than the previous one. In the United Kingdom most taxpayers pay tax at a uniform marginal rate, while other countries have more steeply rising rate schedules. Higher marginal tax rates make work less rewarding, which tends to reduce work effort. High marginal rates, however, may have less impact in some areas than others, a factor that needs to be considered when deciding who should bear the tax burden. Such considerations presumably have influenced the trend in many countries to tax the wealthiest groups.