In national income accounting, what is the key difference between Gross Domestic Product (GDP) and Gross National Product (GNP)?

• A. GDP measures only government production, while GNP measures only private-sector production.
• B. GDP measures production within a country’s borders, while GNP measures production by that country’s residents (nationals) regardless of where the production occurs.
• C. GDP excludes net exports while GNP includes net exports.
• D. GDP includes depreciation (capital consumption allowance) while GNP excludes depreciation.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the definition of Gross Domestic Product (GDP). GDP measures the total market value of all final goods and services produced within a country's borders during a specific time period, regardless of who produces them.
2. Step 2: Understand the definition of Gross National Product (GNP). GNP measures the total market value of all final goods and services produced by the residents (nationals) of a country during a specific time period, regardless of where the production takes place.
3. Step 3: Identify the key difference between GDP and GNP. GDP focuses on location of production (within the country), while GNP focuses on ownership or nationality of the producers (nationals of the country).
4. Step 4: Recognize that GDP includes production by foreign residents or companies within the country, but excludes production by the country's nationals abroad. Conversely, GNP includes production by the country's nationals abroad but excludes production by foreign residents within the country.
5. Step 5: Summarize the key difference: GDP measures economic activity based on geographic location, whereas GNP measures economic activity based on ownership or nationality.