Final answer:
GDP measures the value of goods and services produced within a country's borders, while GNP includes the output of nationals abroad minus income from foreigners domestically. The U.S. has a small GDP - GNP gap, but it can be significant in other nations, offering vital insights into economic well-being.
Step-by-step explanation:
GDP & GNP are both used to measure a nation's economic activity, but they do so from different perspectives. GDP (Gross Domestic Product) is the total value of all goods and services produced within a country's borders, reflecting domestic economic activity. On the other hand, GNP (Gross National Product) adds the output of domestic businesses and labor working abroad and subtracts the income that foreigners earn within the country's borders, thus focusing on the income generated by a nation's citizens and firms, regardless of where it is produced.
For countries like the United States, the gap between GDP and GNP is quite small, reflecting the balanced nature of economic activities of U.S. nationals both at home and abroad. However, this gap can be significant in countries with a large portion of the population working overseas, impacting the measure of economic well-being. Understanding the distinction between GDP and GNP is crucial as it provides insights into the economic performance and the standard of living within a country, helping to inform decisions in business, policy, and economic analysis.