In the study of economics, understanding earlier topics is essential to comprehending later topics. Real Gross National Product (RGNP) is one such subject: the Real Gross National Product is the nominal Gross National Product of a country (which in turn is the total sum of final goods and services produced by domestically owned firms and businesses outside of the country) when adjusted for inflation. To calculate it, the level of inflation and the Gross Domestic Product (GDP) must be understood.
To calculate Real GNP you need to determine nominal GNP by adding capital gains of foreign earnings to the GDP and then factor in inflation by dividing the sum by the Consumer Price Index and multiplying the total by 100.
Calculate the Gross Domestic Product
Calculate the GDP level. The calculation of GDP is simply the sum total of consumption, investment, government expenditure and net exports. To visualize it, it should look like this GDP = C + I + G + E (or Consumption + Investment + Government expenditure + net Exports).
The consumption of a nation can be calculated by adding the sum total of goods that are durable and non-durable as well as spending on services. Investment within a nation will include a study of increases in inventory and fixed assets (in other words, increases in capital by firms). Calculating government expenditure involves finding the sum total of government spending on goods and services (public sectors wages, national defense and healthcare spending). Calculating net exports is simply a case of finding the sum total of imports minus exports.
Calculation of GNP
The nominal GNP calculation is found with the Gross Domestic Product. Now that you know the country's GDP, you can begin the computation of nominal GNP by adding the level of capital gains of foreign earnings. In other words, the full formula should look like this GNP = C + I + G + E + FE (or Consumption + Investment + Government expenditure + net Exports + capital gains of Foreign Earnings) or simply GNP = GDP + FE.
Disregarding the earnings of foreign nationals is important for calculating GNP. Subtract the income earned by foreign nationals by finding an accurate estimation of foreign workers within those domestically owned firms and businesses. As mentioned, foreign earnings are factors that are accumulated by producing overseas by firms and businesses owned domestically to the level of GDP.
Also the money earned by the firm abroad is important: income earned by the local population is subject to the host country’s GDP, not the home country’s GNP. The income of home nationals working for the firm would be subject to GNP, however. It is important not to confuse this with the GDP rule (the domestic worker and the domestic firm based within the country’s borders).
Find the RGNP
Finally, you are ready for the Real GNP formula. Here you will need to adjust the resulting equation for inflation. Divide the resulting equation by the Consumer Price Index (for the appropriate year) and multiply by 100. As a formula, it should read RGNP = (GNP/CPI) x 100.