The difference between the gross domestic product (GDP) and gross national product (GNP) IS?

Analyze the question: It asks what separates GDP from GNP.

Concept:

• GDP measures the value of all goods and services produced within the geographical boundary of a country, whether by citizens or foreigners.
• GNP measures the value of all goods and services produced by a country's citizens, whether they are at home or abroad.

Relationship:

GNP = GDP + Net Income from Abroad (NFIA)

where Net Income from Abroad = income earned by citizens abroad − income earned by foreigners within the country.

Checking the options:

• A. Depreciation: this is the difference between gross and net figures (e.g., GNP and NNP), not between GDP and GNP.
• B. Transfer payment: this is not included in output measurement, so it does not separate GDP from GNP.
• C. Net income from abroad: this is the correct link, since GNP − GDP = NFIA.
• D. Direct taxes: these relate to disposable income, not to GDP or GNP.

Answer: C. Net income from abroad.

Tip: Remember "Domestic = Dividing line is the border (location)", while "National = Nationals (citizens)". Whenever you see GDP versus GNP, think of the net factor income from abroad. Also, Gross versus Net always points to depreciation.