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I'm preparing for my macroeconomics chapter and I keep confusing GDP with GNP. What exactly is added or subtracted to convert one into the other?
GDP (Gross Domestic Product) is the total market value of all final goods and services produced within a country's domestic territory in a year, regardless of who owns the factors of production. GNP (Gross National Product) measures output produced by a country's nationals, whether inside or outside the country. The link is the net factor income from abroad (NFIA), which is income earned by residents abroad minus income earned by foreigners within the country. The formula is: GNP = GDP plus NFIA. So to convert GDP into GNP, you add net factor income from abroad. If a country's residents earn more abroad than foreigners earn within it, NFIA is positive and GNP exceeds GDP. For many developing economies NFIA is negative, so GNP is slightly less than GDP. Remember: GDP is location-based (domestic), while GNP is ownership-based (national).
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