The gross national product (GNP) is a measure of a nation's economic activity globally, as opposed to gross domestic product (GDP) which measures only the economic activity within a specific country's borders. Both of these measures can be expressed in either nominal or real terms. Nominal GNP statistics are expressed individually in the currency value of the year for which the economic activity is being measured by the nominal GNP statistic. Real GNP measurements use a common currency year to express the value of a nation's global economic activity.
GNP represents the economic activity of a country and its citizens, without being limited to the area within the country's borders. It does this by subtracting the income that foreign nationals who are living within the country earn from the country's GDP and adding the income earned by citizens of the country who are living abroad. Additionally, GNP includes money that citizens of that country make from overseas investments.
Nominal GNP is the simplest statistic to compile, because the monetary values will be for the year for which the analyst will be calculating GNP. The problem with nominal GNP statistics is that analysts cannot accurately compare them to one another. This is because of inflation: currency in 1987, for example, likely does not have the same value as the same currency in the present day. For this reason, comparing the nominal GNP of a country in 1987 to that of the same country in 2010 would not show the true quantitative difference in global economic activity by that country and its citizens because inflation is likely to have changed the currency's value.
Analysts compare nominal GNP statistics from different years to one another by converting all of the statistics to the monetary value of a baseline year based on the known rate of inflation in that country. By converting these statistics into a monetary value from a single year, analysts can remove the effect of inflation from the statistics. Real GNP can be expressed using the monetary value of whichever year the analyst chooses as a baseline year.
