📌 Gross National Product (GNP):

🧾 Definition:

GNP is the total value of goods and services produced by the citizens of a country, regardless of whether the production occurs within the country or abroad.

Formula: GNP = GDP + Net Factor Income from Abroad (NFIA)

where NFIA: The difference between income earned by residents from abroad and income earned by non-residents from within the country.

Example: If an Indian company operates in the US, the profit generated would be included in India’s GNP, but not in India’s GDP.

📌 GNP Deflator

🧾 Definition:

The GNP Deflator (Gross National Product Deflator) is a broad measure of inflation in an economy. It reflects the change in prices of all final goods and services produced by the residents of a country, both domestically and abroad, over a specific time period.

It is used to convert Nominal GNP (measured at current prices) into Real GNP (adjusted for inflation), helping to isolate real economic growth from inflationary effects.

📐 Formula:

• Nominal GNP = GNP at current market prices

• Real GNP = GNP at constant (base year) prices

🧮 Example:

Suppose in a given year:

• Nominal GNP = ₹150 lakh crores

• Real GNP = ₹125 lakh crores

GNP Deflator = ( 150 / 125 ) × 100 = 120

✅ This means that prices have risen 20% since the base year.

📌Rate of Change of GNP Deflator

🔄 Definition:

The Rate of Change of the GNP Deflator measures the percentage change in the GNP Deflator over time—typically from one year to the next. It is used to track inflation trends across the entire national output.

📐 Formula:

🧮 Example:

Let’s say:

• GNP Deflator in Year 1 = 110

• GNP Deflator in Year 2 = 121

Rate of Change= [(121−110) / 110] x 100 = [ 11 / 110] ×100 = 10%

✅ This indicates 10% inflation in the economy over the period.

✅ Key Points to Remember:

🧠 Why It Matters:

• The GNP Deflator provides a broad view of inflation, covering all sectors (not just consumer goods).

• The Rate of Change helps in understanding how inflation is evolving, which is essential for:

  • Central bank policy decisions

  • Wage negotiations

  • Real growth analysis

  • Investment planning

✅ Why the Rate of GNP Deflator Explains Inflation Better:

• Inflation is defined as the rate of increase in the general price level.

• The GNP deflator is a price index, but it’s static — it shows a level.

• The rate of change of the GNP deflator is dynamic — it shows how fast the price level is changing, which is exactly what inflation is.