Vs. GNP Flashcards

Which of the following would be included in a country's GNP but NOT in its GDP?

Answer: Wages earned by the country's citizens working in foreign countries

Wages earned by citizens abroad are part of national income (GNP) but not domestic production (GDP).

How does the treatment of a foreign tourist's hotel spending differ between GDP and GNP calculations for the host country?

Answer: It is included in GDP (domestic production) but not directly in GNP

The hotel service is produced within the host country's borders, so it enters GDP, but since the tourist is not a resident, no GNP adjustment occurs.

If GDP grows but GNP stays flat, a likely explanation is:

Answer: An increase in foreign-owned firms' profits being repatriated abroad

Growing GDP with flat GNP suggests more of the domestic output's income is flowing to foreign owners rather than domestic residents.

The term 'factor income' in the GDP-GNP relationship refers to:

Answer: Payments to factors of production such as wages, rent, interest, and profit

Factor income includes wages, rent, interest, and profit — the earnings of labor and capital used in production.

Mexico has many workers employed in the U.S. whose wages flow back to Mexico. This makes Mexico's GNP relative to GDP:

Answer: Higher, because those wages are counted in Mexico's GNP

Wages earned by Mexican nationals in the U.S. add to Mexico's GNP (factor income from abroad) but not its GDP.

An economist calculates GDP = $1 trillion, income received from abroad = $80B, and income sent abroad = $50B. What is GNP?

Answer: $1.03 trillion

GNP = GDP + (income received − income sent) = $1,000B + $80B − $50B = $1,030B = $1.03 trillion.

Which measure would be most appropriate for comparing how much income residents of two countries have available to spend?

Answer: GNP (or GNI) per capita of each country

GNP/GNI per capita captures income earned by residents regardless of where production occurs, best reflecting spending power.