Which statement best describes the difference between GDP and GNI?

Which statement best describes the difference between GDP and GNI?

• A. GDP is the total value of all final goods and services produced domestically in a country in a period.
• B. GDP plus net income from abroad equals the total value of production globally.
• C. GNI is GDP plus income earned by residents from abroad minus income earned by non-residents domestically.
• D. GDP plus net income from abroad equals the total value of production globally.

Answer: (C)

The difference hinges on whether we’re counting where production happens or who earns the income. GDP measures the value of all final goods and services produced within a country’s borders, regardless of who owns the production. GNI, however, adjusts that by including income residents earn from abroad and subtracting income non-residents earn domestically. So the best description is that GNI equals GDP plus income earned by residents from abroad minus income earned by non-residents domestically. For example, if residents own factories overseas and send profits back home, that income boosts GNI but not GDP. If foreign workers earn wages in the country and send them abroad, that income is subtracted from GNI. The other statements either describe GDP itself or mix up the idea of production with income flows, which is why they don’t capture the difference.

The difference hinges on whether we’re counting where production happens or who earns the income. GDP measures the value of all final goods and services produced within a country’s borders, regardless of who owns the production. GNI, however, adjusts that by including income residents earn from abroad and subtracting income non-residents earn domestically. So the best description is that GNI equals GDP plus income earned by residents from abroad minus income earned by non-residents domestically.

For example, if residents own factories overseas and send profits back home, that income boosts GNI but not GDP. If foreign workers earn wages in the country and send them abroad, that income is subtracted from GNI. The other statements either describe GDP itself or mix up the idea of production with income flows, which is why they don’t capture the difference.