When comparing GNP with GDP, which of the following is TRUE?

Question

BlackTom AI · Accepted Answer

Let’s break down the question by revisiting the definitions of GDP and GNP and then evaluate each choice one by one.
Option 1: 'GNP measures production by a nation’s firms regardless of location.' This aligns with the standard definition of GNP, which accounts for the output of a country’s residents and enterprises no matter where that production occurs in the world. It correctly contrasts with GDP, which is location-based (within the country’s borders).
Option 2: 'Differences between GNP and GDP are minor for all nations.' In reality, the gap between GDP and GNP can vary widely by country and period, depending on factors like net income from abroad, foreign direct investment, and where multinational firms earn profits. Therefore this statement is not generally true.
Option 3: 'GDP measures production within a nation, as long as the producing firm is not foreign.' This is a mischaracterization. GDP includes all production within the geographic borders of the nation, regardless of whether the firm is domestic or foreign. Foreign-owned firms operating domestically contribute to GDP, so the condition about the firm’s nationality is not correct.
Option 4: 'For a nation like the US, the difference between GNP and GDP is huge and important to consider.' In the United States, the difference between GDP and GNP is relatively small because most of US production happens domestically and US residents’ income abroad is not very large compared to domestic output. Therefore this claim overstates the importance of the gap for the US specifically.
By comparing each option against the standard definitions and typical implications, we see how the statements line up with economic concepts and where they diverge in meaning or typical relevance.

ECON 2002.01 SP2025 (25230) Midterm Exam 2

When comparing GNP with GDP, which of the following is TRUE?

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