Consider the following statements regarding 'Gross National Product (GNP)': 1. It measures the aggregate production of final goods and services taking place within the domestic economy only. 2. It is calculated by adding Net Factor Income from Abroad to GDP. 3. It deducts the earnings of foreigners working within the domestic economy. Which of the statements given above is/are correct?

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).

NCERT Class 12 Economics — Chapter 4: National Income Accounting

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Consider the following statements regarding 'Gross National Product (GNP)':

It measures the aggregate production of final goods and services taking place within the domestic economy only.
It is calculated by adding Net Factor Income from Abroad to GDP.
It deducts the earnings of foreigners working within the domestic economy.

Which of the statements given above is/are correct?

Official previous-year question

Verified 1 Aug 2026.

Options

A2 only
B2 and 3 only
C1 and 2 only
D1, 2 and 3

Did you get this right?

Solution

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).

Your note

More from Chapter 4: National Income Accounting

In the context of National Income aggregates, what does 'Private Income' include that 'Personal Income' does not?

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Consider the following statements regarding 'Nominal GDP' and 'Real GDP': 1. Nominal GDP is evaluated at current prevailing prices. 2. Real GDP is evaluated at current market prices. 3. If Real GDP changes, it implies a change in prices only. Which of the statements given above is/are correct?

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Which of the following is NOT a reason for the difference between CPI and GDP Deflator?

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What is the primary reason for deducting 'Imports' in the expenditure method of calculating GDP?

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Keep practising Chapter 4: National Income Accounting

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The correct option is 2 and 3 only.

Explanation

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).