In national income accounting, how does gross domestic product (GDP) differ from gross national product (GNP)?

• A. GDP measures production within a country’s borders regardless of who owns the factors of production, while GNP measures production by a country’s residents (nationals) regardless of where it occurs.
• B. GDP measures production by a country’s residents regardless of location, while GNP measures production within a country’s borders regardless of who owns the factors of production.
• C. GDP excludes depreciation (capital consumption allowance) while GNP includes depreciation.
• D. GDP measures only goods production while GNP measures goods and services production.

Answer: (A)

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 owns the factors of production.
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 of production (by the country's residents).
4. Step 4: Recognize that GDP includes production by foreign-owned firms within the country, but excludes production by domestic residents abroad. Conversely, GNP includes production by domestic residents abroad but excludes production by foreign residents within the country.
5. Step 5: Use this understanding to evaluate the given answer choices and select the one that correctly states that GDP measures production within a country's borders regardless of ownership, while GNP measures production by a country's residents regardless of location.