Which statement about GDP and GNP is true?

• A. GDP measures production by a country's residents regardless of location, while GNP measures production within a country's borders.
• B. GDP and GNP are always equal because they measure the same total production.
• C. GNP equals GDP minus net factor income from abroad.
• D. GDP measures production within a country's borders, while GNP measures production by a country's residents regardless of where it occurs.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the definitions of GDP and GNP. Gross Domestic Product (GDP) measures the total value of goods and services produced within a country's borders during a specific period, regardless of who produces them.
2. Step 2: Recognize that Gross National Product (GNP) measures the total value of goods and services produced by the residents of a country, regardless of where they are located in the world.
3. Step 3: Note the relationship between GDP and GNP, which can be expressed as: \(\text{GNP} = \text{GDP} + \text{Net Factor Income from Abroad}\), where net factor income from abroad is income earned by residents from overseas minus income earned by foreigners domestically.
4. Step 4: Analyze the given statements by comparing them to these definitions and the formula. Identify which statement correctly reflects the concepts of GDP and GNP.
5. Step 5: Conclude that the true statement is the one that says GDP measures production within a country's borders, while GNP measures production by a country's residents regardless of location.