Question

What is an open economy? Write the most important five
differences between GDP and GNP​

Answer 1

Answer:

An open economy is a type of economy where not only domestic factors but also entities in other countries engage in trade of products. Trade can take the form of managerial exchange, technology transfers, and all kinds of goods and services.

GDP

• The value of goods and services produced within the geographical boundaries of a nation in a financial year is termed as GDP.
• It measures only the domestic production.
• It emphasizes on the production that is obtained domestically.
• It highlights the strength of the country’s economy.
• Local scale
• The goods and services that are being produced outside the economy are excluded.

GNP

• The value of goods and services produced by the citizens of a nation irrespective of the geographical limits in a financial year is known as GNP.
• It measures only the national production.
• It emphasizes on the production that is achieved by the citizens living in different nations.
• It highlights the contribution of the residents to the development of the economy
• International scale
• The goods and services that are produced by the foreigners living in the country are excluded.