Identify which of the following statements is incorrect with reference to an economy?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Sum of Gross Domestic Product (GDP) and Gross National Product (GNP) is always equal to zero.
Option 1: Sum of Gross Domestic Product (GDP) and Gross National Product (GNP) is always equal to zero.This statement is incorrect because GDP + GNP is not equal to zero. In fact, both GDP and GNP are positive monetary values representing the total output of goods and services, but calculated differently.
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Gross Domestic Product (GDP) measures the total value of goods and services produced within the geographical boundaries of a country, regardless of who produces it (residents or foreigners).
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Gross National Product (GNP) measures the total value of goods and services produced by the residents of a country, both domestically and abroad.
The difference between GDP and GNP is called Net Factor Income from Abroad (NFIA) i.e. GNP = GDP + NFIA
Option 2: Excess of Gross Domestic Product (GDP) over Gross National Product (GNP) is possible. This is correct. This occurs when NFIA is negative, meaning the income earned by foreign residents within the country is greater than the income earned by the country's residents from abroad.
Option 3: Equality between Gross Domestic Product (GDP) and Gross National Product (GNP) is possible. This is true. This occurs when NFIA is zero, meaning the income earned by a country's residents from abroad is exactly equal to the income earned by foreign residents within the country.
Option 4: Excess of Gross National Product (GNP) over Gross Domestic Product (GDP) is possible. This is true. This occurs when NFIA is positive, meaning the income earned by a country's residents from abroad is greater than the income earned by foreign residents within the country.