Which statement correctly contrasts GDP and GNP?

• A. GDP measures domestic production by residents only.
• B. GNP measures production by residents regardless of location.
• C. GDP measures production by residents regardless of location.
• D. GNP equals GDP in every economy.

Answer: (B)

GDP looks at where production happens—it's the total value of goods and services produced within a country's borders, regardless of who owns the resources. GNP shifts the focus to who owns the production—it's the total value of goods and services produced by the residents of the country, no matter where in the world that production takes place.

That’s why the correct idea is that GNP measures production by residents regardless of location. For example, production by foreign companies within a country would boost that country’s GDP but not its GNP, while production by its own residents abroad would boost its GNP but not its GDP. The two measures can differ a lot in economies with significant overseas activity or substantial foreign production at home; they’re only equal in situations where overseas production by residents and domestic production by non-residents balance out.