Which of the following would be included in U.S. GNP but not in U.S. GDP?
A. The tips received by a waiter in New Jersey.
B. Auto parts produced by a Japanese-owned firm operating in North Carolina.
C. Sales of used cars in the United States.
D. Chipsets produced by U.S.-owned firms operating in China.
The correct answer and explanation is :
Correct Answer: D. Chipsets produced by U.S.-owned firms operating in China.
Explanation (Approx. 300 words):
To understand why Option D is correct, we must differentiate between Gross Domestic Product (GDP) and Gross National Product (GNP):
- GDP measures the total value of goods and services produced within a country’s borders, regardless of who owns the production assets. In other words, it includes all production occurring inside the United States, whether by American or foreign companies.
- GNP, on the other hand, measures the total value of goods and services produced by the nationals (citizens and businesses) of a country, regardless of where they are located. So, it includes production by U.S. residents and companies, even if the production happens outside the U.S.
Let’s evaluate the options:
- A. Tips received by a waiter in New Jersey: This is part of both GDP and GNP since the service occurs within the U.S. and by a U.S. resident.
- B. Auto parts produced by a Japanese-owned firm operating in North Carolina: Since production occurs in the U.S., it counts toward U.S. GDP, but because the firm is Japanese-owned, it does not count toward U.S. GNP.
- C. Sales of used cars in the United States: These are not included in either GDP or GNP because GDP only counts new production. Used goods don’t represent new economic activity.
- D. Chipsets produced by U.S.-owned firms operating in China: This production happens outside the U.S., so it does not count in U.S. GDP. However, because the firm is U.S.-owned, the value does count in U.S. GNP.
Thus, Option D is the correct answer because it involves production by a U.S.-owned firm abroad—excluded from GDP but included in GNP.