GDP Vs. GNP 4

Question 1

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

Accepted Answer

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

Answer

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

Question 2

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

Accepted Answer

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

Answer

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.

Question 3

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

Accepted Answer

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

Answer

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

Question 4

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

Accepted Answer

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

Answer

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

Question 5

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

Accepted Answer

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

Answer

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

GDP - Gross Domestic Product Practice Test