What is the key difference between GDP and GNP?

• A. GDP measures domestic economic output.
• B. GNP measures domestic economic output.
• C. GDP measures domestic economic output; GNP adds income earned by residents abroad.
• D. GDP and GNP are the same concept.

Answer: (C)

GDP measures what is produced inside a country’s borders during a given period. GNP shifts the focus to who owns the production: it adds the income residents earn from activities abroad (and subtracts income that foreigners earn domestically), so it captures the total income of a country’s residents regardless of where that production happens. In other words, GDP asks “what did we produce here?” while GNP asks “what did our residents earn worldwide?” An example: a Canadian-owned factory in the United States adds to U.S. GDP, but its profits paid to Canadian owners count toward Canada’s GNP. That distinction is why the correct description is that GDP measures domestic output; GNP adds residents’ income earned abroad.