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Chapter 19: Problem 4

Suppose Switzerland has many of its citizens temporarily working in other countries, and many of its firms have facilities in other countries. Furthermore, suppose relatively few citizens of foreign countries are working in Switzerland, and relatively few foreign firms have facilities in Switzerland. In these circumstances, which would you expect to be larger for Switzerland, GDP or GNP? Briefly explain.

Short Answer

Expert verified
Given the scenario, Switzerland's GNP would be larger than its GDP.

Step by step solution

01

Understanding GDP and GNP

The Gross Domestic Product (GDP) is the total value of all goods and services produced within a country’s borders. It includes output from foreign firms that operate in the country. The Gross National Product (GNP) is the total value of all goods and services produced by a country’s residents, regardless of where they are located in the world.
02

Evaluating the Situation in Switzerland

Given the information in the exercise, there are many Swiss citizens working abroad, and many Swiss firms have facilities located in other countries. This implies that a substantial portion of Switzerland's economic output is produced outside Switzerland's borders.
03

Comparing GDP and GNP for Switzerland

Since GDP measures economic activity within Switzerland's borders and GNP measures the output of Swiss residents and firms even if operating abroad, and considering that there are more Swiss individuals and firms abroad than foreigners operating in Switzerland, it can be inferred that Switzerland's GNP would be larger than its GDP.

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Most popular questions from this chapter

For each of the following statements, briefly explain whether you agree. a. "If nominal GDP is less than real GDP, then the price level must have fallen during the year." b. "Whenever real GDP declines, nominal GDP must also decline." c. "If a recession is so severe that the price level declines, then we know that both real GDP and nominal GDP must decline." d. "Nominal GDP declined between 2008 and 2009 ; therefore, the GDP deflator must also have declined."

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