Question

Suppose that the BMW plant in Spartanburg, South Carolina, USA, produces $10 million worth of vehicles in a given year. Of this total amount, $1 million in profits are returned to the owners of the company in Germany. The $1 million in profits __________.a. contributes to U.S. GNP, but not U.S. GDP
b. contributes to U.S. GDP, but not U.S. GNP
c. contributes to U.S. GDP and U.S. GNP
d. contributes to neither U.S. GDP, nor U.S. GNP

Answer 1

Answer:

The answer is B. contributes to U.S. GDP, but not U.S. GNP

Explanation:

Gross Domestic Product (GDP) is the market value of all final goods and services produced within the economy of a country within a period of time.

Gross National Product(GNP) is the market value of all final goods and services produced by a citizen of a country irrespective of whether they are in the country or outside the country within a period of time.

The BMW plant in Spartanburg which produces $10million worth of vehicles is in USA but the company in owned by Germans. Since it is produced within the economy of USA, it will count for USA's GDP but it won't count for USA's GNP because it is not owned by USA citizen rather, it will count for Germany's GNP because it is owned by Germans.