Vs. GNP Flashcards

In the late 1980s, the U.S. switched from using GNP to GDP as its primary national accounts measure. What was the main reason?

Answer: GDP allows easier international comparisons since most countries use it

The U.S. adopted GDP in 1991 primarily to align with international standards and allow more consistent cross-country comparisons.

Country X has GDP of $500 billion, income paid to foreign factors of $40 billion, and income received from abroad by residents of $30 billion. What is Country X's GNP?

Answer: $490 billion

GNP = GDP + income from abroad − income to foreigners = $500B + $30B − $40B = $490 billion.

Which scenario would cause a country's GNP to exceed its GDP?

Answer: Residents earn more abroad than foreigners earn domestically

When residents' foreign earnings exceed what foreigners earn domestically, NFIA is positive, pushing GNP above GDP.

The concept most similar to GNP in modern national accounting terminology is:

Answer: Gross National Income (GNI)

GNI has largely replaced GNP in modern usage; both measure income earned by a country's residents regardless of location.

A developing country with a large diaspora sending remittances home would see its GNP relative to GDP:

Answer: Higher, because diaspora earnings abroad add to GNP

Earnings by residents working abroad are factor income counted in GNP, so a large working diaspora raises GNP above GDP.

Which statement about GDP and GNP is TRUE for a closed economy (no international transactions)?

Answer: GDP and GNP are equal because there is no foreign factor income

With no cross-border factor income flows, NFIA equals zero, making GDP and GNP identical.

From a policy perspective, GDP is often preferred over GNP for measuring domestic economic capacity because:

Answer: GDP captures all production occurring within borders, reflecting domestic jobs and infrastructure use

GDP measures total output within a country's borders, directly reflecting domestic employment, investment, and production capacity.