When is GDP roughly the same as GNP?

• A. When net exports are close to zero
• B. When depreciation (capital consumption allowance) is close to zero
• C. When net factor income from abroad (income residents earn abroad minus income foreigners earn domestically) is close to zero
• D. When indirect business taxes are close to zero

Answer: (C)

Verified step by step guidance

1. Understand the definitions: GDP (Gross Domestic Product) measures the total value of goods and services produced within a country's borders, while GNP (Gross National Product) measures the total income earned by a country's residents, regardless of where the production occurs.
2. Recall the relationship between GDP and GNP: GNP = GDP + Net Factor Income from Abroad (NFIA), where NFIA = income residents earn abroad minus income foreigners earn domestically.
3. Analyze the condition for GDP to be roughly equal to GNP: this happens when the Net Factor Income from Abroad (NFIA) is close to zero, meaning the income residents earn abroad is nearly equal to the income foreigners earn domestically.
4. Note that net exports (exports minus imports) affect GDP but not directly the difference between GDP and GNP, so net exports being zero does not guarantee GDP equals GNP.
5. Recognize that depreciation and indirect business taxes affect GDP and GNP calculations differently but do not directly determine when GDP equals GNP; the key factor is the net factor income from abroad.