Question

Last year, President Trump at the Davos Forum invited many European Business leaders to attend a dinner. The purpose of this dinner is to ask them to do business in the U.S. Suppose the CEO of Adidas, a German Company, decided to have a new factory in Texas. Workers are Americans but the shareholders are Germans. Total revenue of this factory is expected to be $600 million. Wage payment is expected to be $400 million and the rest is profit. How would this affect the German GDP/GNP and American GDP/GNP?

Answer 1

Answer : The net income for Germany from America is (600 - 400) = $200. As only GNP include the net income from abroad, hence only the GNP of Germany increases by $200 and GDP remains unchanged for Germany.  

$400 is the wage payment for American workers who spend their wage on their consumption. As GDP include the consumption, hence the GDP of America increases by $400. Again as GDP is included in GNP and GDP increases by $400, hence the GNP also increases by $400 for America. Therefore, here GDP and GNP both of them increases by $400 for America.