UK Gross Domestic Product (in contrast to Gross National Product) measures the production and income of

Question

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Question restatement: UK Gross Domestic Product (in contrast to Gross National Product) measures the production and income of

Options:
 a. the domestic service sector only
 b. British-owned firms no matter where they are located in the world
 c. people and factories located within the borders of the UK
 d. the domestic manufacturing sector only

Analysis of each option:

Option a: 'the domestic service sector only.' This is incorrect because GDP encompasses all final goods and services produced within the country’s borders, not just services or a single sector. It includes manufacturing, construction, agriculture, and services alike, so limiting it to the service sector misses substantial portions of production (e.g., factories, farms).

Option b: 'British-owned firms no matter where they are located in the world.' This describes GNP (Gross National Product), which measures the value of goods and services produced by a country’s residents regardless of where the production occurs. It is not GDP, which focuses on location within the country’s borders. Hence this is incorrect.

Option c: 'people and factories located within the borders of the UK.' This aligns with the core definition of GDP: the total value of goods and services produced domestically within a country’s borders, irrespective of who owns the resources. It captures both the labor (people) and the physical capital (factories) operating inside the country.

Option d: 'the domestic manufacturing sector only.' This is too narrow because GDP includes all production within the country, not just manufacturing. Services, construction, agriculture, and other sectors contribute to GDP as well, so restricting to manufacturing is inaccurate.

Additional notes: The key distinction between GDP and GNP hinges on location versus ownership. GDP is geographic—production within borders—while GNP is ownership-based—production by a country’s residents, anywhere in the world. Understanding this helps clarify why option c correctly describes GDP in contrast to GNP.

252 EC301 Principles of Macroeconomics

UK Gross Domestic Product (in contrast to Gross National Product) measures the production and income of

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