Which statement is true about GDP in relation to income earned abroad?

• A. It includes income earned abroad by residents
• B. It excludes income earned abroad by residents
• C. It measures only government sector output
• D. It includes net overseas investments

Answer: (B)

GDP measures the value of final goods and services produced within a country’s borders during a period. It is tied to where production happens, not who earns the income. So income earned abroad by residents isn’t part of that domestic production and is not included in GDP; it would instead appear in GNP (or GNI), which counts residents’ income from all sources worldwide. This distinction matters even when residents earn abroad or when foreign-owned firms operate domestically: if a factory is in the country, its output is counted in GDP, regardless of ownership. The statement that GDP excludes income earned abroad by residents is the correct way to express this relationship. The other options mix up the focus on production location, government-only output, or investment income, which aren’t how GDP is defined.