Net National Product (NNP)
Plain definition
Net National Product is gross national product minus depreciation — the wear and tear on machinery, buildings, and equipment during production. It measures what a nation's residents produced after setting aside enough to replace the capital they used up.
In economics
NNP is a truer measure of sustainable income than GNP, because part of gross output must be reinvested just to maintain the existing capital stock. Economists also relate it to national accounting: NNP equals GNP minus capital consumption allowance, and it sits one step above national income (NNP at factor cost). If NNP stagnates, the economy is consuming its capital base rather than growing.
Example
Suppose GNP is 3 trillion of value during the year. NNP = 20 - 3 = 3 trillion of depreciation is not available for consumption or growth — it must be reinvested to keep productive capacity intact.
NNP is confused with GDP in two ways: 'net' refers to subtracting depreciation (not subtracting imports or taxes), and 'national' refers to residents' output (not domestic location). NNP = GNP - depreciation. It is also distinct from national income, which is NNP minus net indirect business taxes (valued at factor cost rather than market prices).