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What Is Real GNP?

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  • Written By: Maggie Worth
  • Edited By: Jenn Walker
  • Last Modified Date: 01 December 2014
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The total market value of a country's production of goods and services during a specified time period — often a year — is referred to as its gross national product (GNP). Real GNP is gross national product that has been adjusted to account for inflation, which is the fluctuation of costs and prices over time. In essence, real GNP uses a combination of current-period production numbers and past-period prices to derive a number that can be legitimately compared across time periods to determine growth or attrition of a country's GNP.

Some economists believe that comparing the GNP from year to year is not a valid or usable exercise because prices change over time. In response, they developed real GNP, which multiplies the number of units produced by the prices in effect during the base year. This allows a clear comparison between each time period's GNP. This data allows analysts to determine if a country is producing more or less, to identify trends in a nation's production economy and to compare the GNP of several countries across a long period of time.

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GNP that has not been adjusted for inflation is sometimes known as nominal GNP, as opposed to real GNP. Both are frequently confused with GDP, which stands for gross domestic product. GNP represents the value of goods and services produced by all of the citizens of a country and by all of the properties owned by the country or by its citizens, regardless of location. This means that GNP would include products made by a plant located in France but owned by the US.

GDP, on the other hand, is geographically based and takes into account the value only of those goods and services produced in a specific area during the alloted time frame. It does not take ownership into consideration. This means that the value of the goods manufactured by a plant located in the US but owned by France would be part of the US GDP rather than the GDP of France.

The concept of real GNP is part of real business cycle theory. It is not accepted by all economists and is sometimes a source of debate and contention within academic, financial, governmental and economic circles. In college and university macroeconomics classes, it is likely to be taught as a theory rather than a fact and may be compared against other, more traditional methods of evaluating a nation's production over time.

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