Which statement about GDP and GNP is true?

Which statement about GDP and GNP is true?

• A. GDP measures domestic production by residents only.
• B. GNP measures domestic production by residents only.
• C. GDP measures domestic production by all producers within borders; GNP measures production by residents regardless of location.
• D. GNP equals GDP in every economy.

Answer: (C)

The main idea is the difference between measuring production by location versus by ownership. GDP counts the value of final goods and services produced within a country’s borders, by all producers located there, regardless of who owns them. GNP counts the value of final goods and services produced by residents of the country, regardless of where the production takes place. So, the statement that GDP measures domestic production by all producers within borders and GNP measures production by residents regardless of location is true. For example, a factory owned by a foreign company operating domestically adds to GDP but not to GNP, while a resident producing goods abroad adds to GNP but not to GDP. GNP equals GDP only when net income from abroad is zero.

The main idea is the difference between measuring production by location versus by ownership. GDP counts the value of final goods and services produced within a country’s borders, by all producers located there, regardless of who owns them. GNP counts the value of final goods and services produced by residents of the country, regardless of where the production takes place. So, the statement that GDP measures domestic production by all producers within borders and GNP measures production by residents regardless of location is true. For example, a factory owned by a foreign company operating domestically adds to GDP but not to GNP, while a resident producing goods abroad adds to GNP but not to GDP. GNP equals GDP only when net income from abroad is zero.