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What Is a GNP Deflator?

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  • Written By: K.C. Bruning
  • Edited By: John Allen
  • Last Modified Date: 06 July 2014
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The gross national product (GNP) deflator is a concept that demonstrates how inflation has affected the GNP over the course of a year. This ratio helps to determine the real GNP, as opposed to the nominal figure. It is expressed via an equation in which the GNP deflator is equal to the nominal GNP divided by the real GNP, which is then multiplied by 100. The solution to the equation is shown as a percentage.

In order to calculate the GNP deflator equation, a base period is first determined. Then the current GNP is found. The results will help to reveal how much the price for products and services has gone up and down. This information is typically expressed with three decimal places.

There are several steps necessary to calculate the gross national product for the GNP deflator equation. First, the gross domestic product (GDP) is determined by finding the value of the products and services generated within a year or another set time period and within the borders of the country in question. The equation is the sum of four factors: government spending, private consumption and spending, the country’s net exports, and business spending.

Once the GDP has been calculated, additional money coming into and leaving the country is accounted for. The money earned overseas by residents of the country is added to the GDP, while money earned by residents overseas is subtracted. Then this figure is used to calculate the GNP deflator.

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The GDP and GNP are often confused. A major difference between the two is that the GDP only considers money earned in the country while the GNP accounts for international income and expenses. While the GDP accounts for a specific region, the GNP shows how the country is performing economically overall by using citizenship as a factor for determining value.

In many places, it is possible to track the GNP deflator back several decades. There are tables available which show the year, price index, and percentage. They also often show how much the percentage has increased and decreased from year to year and during previous periods.

The GNP deflator can be confused with the GDP deflator. This economic metric uses the same equation, but switches the GDP for the GNP in the equation. The gross national income (GNI) is another similar concept. It encompasses both the GDP and income from other countries.

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