Which of the following is the correct relationship between Gross Domestic product (GDP), Gross National Product (GNP), Net Income Receipt (X), and Net Outflow to the foreign Assets (Y)?
Show Hint
GNP = GDP + net factor income from abroad (income received minus outflow).
Step 1: Understanding the Concept:
GDP counts the value of all goods and services produced inside the borders of a country. GNP counts the value produced by the citizens of the country, wherever they live and work.
Step 2: Key Formula:
To move from GDP to GNP, add the income that citizens earn abroad and subtract the income that foreigners earn inside the country. In symbols, GNP = GDP + net factor income from abroad.
Step 3: Read X and Y in this question.
X is the net income received (from abroad). Y is the net outflow to foreign assets, so it reduces the income that stays with the nation. Hence the net income from abroad is X - Y.
Step 4: Write the relation.
\[ GNP = GDP + X - Y \] This matches option 2.
Step 5: Check option 1.
GNP = GDP - X + Y has the signs reversed. It would subtract income received and add outflow, which is the wrong direction. So option 1 is wrong.
Step 6: Check option 3.
GDP - X = GNP + Y rearranges to GNP = GDP - X - Y. Here X is subtracted instead of added, so option 3 is wrong.
Step 7: Check option 4.
GDP + Y = GNP - X rearranges to GNP = GDP + X + Y. Here Y is added instead of subtracted, so option 4 is wrong.
Final Answer:
GNP = GDP + X - Y, which is option 2.
\[ \boxed{\text{Option 2}} \]
