When a gadget is produced in Mexico by a U.S. company, how is it counted in Gross Domestic Product (GDP)?

• A. It is not included in the GDP of either country.
• B. It is included in both Mexico's and the U.S. GDP.
• C. It is included in Mexico's GDP but not in the U.S. GDP.
• D. It is included in the U.S. GDP but not in Mexico's GDP.

Answer: (C)

Verified step by step guidance

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.
2. Identify the location of production: Since the gadget is produced in Mexico, the production physically takes place within Mexico's borders.
3. Apply the GDP concept: Because GDP counts production within a country's borders regardless of the producer's nationality, the value of the gadget is included in Mexico's GDP.
4. Consider the Gross National Product (GNP) distinction: GNP measures the value of goods and services produced by a country's residents regardless of location, which differs from GDP.
5. Conclude that the gadget is included in Mexico's GDP but not in the U.S. GDP, since the production occurs in Mexico, even though the company is U.S.-owned.