The correct option is 2 and 3 only.
Explanation
National Income aggregates are classified based on the territory of production (Domestic) or the residency of the producers (National). Gross National Product (GNP) is a measure of the value of all final goods and services produced by the nationals or residents of a country, regardless of whether the production takes place within the domestic territory or abroad.
Statement-wise Analysis
- Statement 1 is Incorrect. The aggregate production of final goods and services taking place within the domestic economy only refers to Gross Domestic Product (GDP). GNP is not restricted to the domestic territory; it includes the economic activities of nationals operating abroad and excludes the activities of foreigners operating within the domestic territory.
- Statement 2 is Correct. GNP is derived from GDP by adjusting for the flow of income across borders. The formula is:
GNP = GDP + Net Factor Income from Abroad (NFIA).
NFIA accounts for the difference between income earned by residents from the rest of the world and income earned by non-residents within the domestic territory. - Statement 3 is Correct. To calculate GNP from GDP, one must add the factor income earned by the country's residents abroad and deduct the factor income earned by non-residents (foreigners) within the domestic economy. Therefore, the earnings of foreigners working within the domestic economy are subtracted.
Key Takeaway: GDP is a territorial concept (where production happens), whereas GNP is a national concept (who produces it). GNP = GDP + (Income from Abroad - Income to Abroad).