Why is the gross national product (GNP) an inaccurate indicator of a nation’s economic status?

Question

Why is the gross national product (GNP) an inaccurate indicator of a nation’s economic status? How is it corrected by the net national product (NNP)?

Answer 1

Hm. Let's put it this way.

You might tabulate all the money you earn on your job. That would be like the GNP. It's just a raw number indicating total sales of goods.

But even if you earn $100 in a day, that doesn't mean you can spend that $100 on anything you like. If you don't eat, you'll starve to death. If you don't put gas in your car you can't get to work tomorrow. And so on. That is like the NNP.

Once you subtract out all those expenses you have to pay just to keep working, you might have a very different picture: If you have to drive a hundred miles to work every day and the only place to eat is a fancy restaurant, you may only have $10 to spend when you're done. Or if you live across the street from work in your parents' house, you may have almost the full $100.

As you can see, a lot of mandatory expenses can turn a huge GNP into a small NNP. What seemed like a huge bankroll is actually little profit at all. Therefore, in some ways NNP is a much better indicator of produced wealth than GDP.

Answer 2

The Gross National Product counts all spending. But some of that spending goes to replace capital that wears out. Net National Product subtracts the depreciation of the capital.

Answer 3

Because the mean income (GNP) like any mean in statistics is greatly effected by extreme outliers (in this case very high incomes). So the vast majority of a country could be very poor, but because it has 100 billionaires to raise the mean income or GNP, it doesn't truly reflect the average income of a given country.

Answer 4

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