Correct Option
The correct option is 2 only
Explanation
National Income Accounting measures the economic activity of a country. The two primary aggregates are Gross Domestic Product (GDP), which focuses on production within the domestic territory, and Gross National Product (GNP), which focuses on the income generated by the normal residents of a country, regardless of where they are located.
Statement-wise Analysis
- Statement 1 is Incorrect: Gross Domestic Product (GDP) is defined as the total monetary value of all final goods and services produced within the domestic territory of a country during a specific period, usually one year. It focuses on the geography of production.
- Statement 2 is Correct: Gross National Product (GNP) is derived by adjusting GDP for Net Factor Income from Abroad (NFIA), not by deducting exports. The formula is:
GNP = GDP + Net Factor Income from Abroad.
Exports are already included in the calculation of GDP (under the expenditure method: C + I + G + X - M). Deducting exports is not the method to transition from GDP to GNP. - Statement 3 is Incorrect: The "net earning from foreign transactions" in the context of GNP refers to Net Factor Income from Abroad (NFIA). This is the difference between income earned by domestic factors of production abroad and income earned by foreign factors within the domestic economy. For developing countries like India, NFIA is often negative due to significant outflows in the form of interest payments on foreign debt and returns on foreign investment. It is factually incorrect to state it is "always positive."
Key Takeaway
Key Takeaway: The fundamental difference between GDP and GNP is Net Factor Income from Abroad (NFIA). GDP is a territorial concept (where production happens), while GNP is a national concept (who owns the factors of production).