GDP Vs. GNP 2 — Questions and Answers
Question 1: A U.S. citizen works in Canada and earns $80,000. How does this income affect U.S. GDP vs. U.S. GNP?
- Counted in both U.S. GDP and U.S. GNP
- Counted in U.S. GDP only
- Counted in U.S. GNP only (Correct answer)
- Counted in neither U.S. GDP nor U.S. GNP
Correct answer: Counted in U.S. GNP only
U.S. GNP includes income earned by U.S. residents abroad, while U.S. GDP only counts output produced within U.S. borders.
Question 2: Which of the following best describes the key difference between GDP and GNP?
- GDP measures final goods; GNP measures intermediate goods
- GDP is geographic-based; GNP is nationality-based (Correct answer)
- GDP excludes services; GNP includes services
- GDP is nominal; GNP is always real
Correct answer: GDP is geographic-based; GNP is nationality-based
GDP measures output within a country's borders regardless of who produces it, while GNP measures output by a country's residents regardless of where they produce it.
Question 3: The formula GNP = GDP + Net Factor Income from Abroad (NFIA) shows that if NFIA is negative, then:
- GNP equals GDP
- GNP is greater than GDP
- GNP is less than GDP (Correct answer)
- GDP cannot be calculated
Correct answer: GNP is less than GDP
A negative NFIA means foreigners earn more from the country than its residents earn abroad, making GNP smaller than GDP.
Question 4: For a small country like Ireland with many foreign multinational corporations operating domestically, which is typically larger?
- GNP, because exports exceed imports
- GDP, because foreign firms boost domestic output beyond what Irish residents earn (Correct answer)
- They are always equal for EU member states
- GNP, because Irish workers dominate the labor force
Correct answer: GDP, because foreign firms boost domestic output beyond what Irish residents earn
Foreign multinationals generate large domestic output counted in GDP, while profits repatriated abroad reduce GNP relative to GDP.
Question 5: Net National Product (NNP) is most directly derived from which measure?
- GDP minus taxes
- GNP minus depreciation (Correct answer)
- GDP plus depreciation
- GNP plus exports
Correct answer: GNP minus depreciation
NNP equals GNP minus capital depreciation, representing the net output available after accounting for wear on the capital stock.
Question 6: If a Japanese automaker operates a plant in Ohio, the plant's output is counted in:
- U.S. GNP and Japan's GDP
- Japan's GNP only
- U.S. GDP and Japan's GNP (Correct answer)
- Both countries' GDP equally
Correct answer: U.S. GDP and Japan's GNP
Output produced on U.S. soil counts in U.S. GDP; profits flowing back to Japanese owners count in Japan's GNP.
Question 7: Economists studying a country's standard of living for its own residents would more likely prefer which measure?
- GDP, because it captures all domestic activity
- GNP, because it reflects income earned by the country's residents (Correct answer)
- Trade balance, because it shows net exports
- M2 money supply, because it controls inflation
Correct answer: GNP, because it reflects income earned by the country's residents
GNP better reflects income available to a nation's residents, making it more relevant for analyzing living standards of that population.
GDP Vs. GNP 2
A U.S. citizen works in Canada and earns $80,000.
How does this income affect U.S.
GDP vs.
U.S.
GNP?