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Difficulty: MediumBasic National Income Aggregates (GDP, GNP, NNP, NDP)

An economy records a Gross Domestic Product (GDP) of 850 million Naira. The factor income earned by citizens from abroad is 30 million Naira, while factor income paid to foreigners within the domestic economy is 70 million Naira. If the capital consumption allowance (depreciation) is 65 million Naira, what is the Net National Product (NNP) of the country in million Naira?

Answer: 745 million Naira

Answer

The Net National Product (NNP) of the country is 745 million Naira.
To determine the Net National Product (NNP), first calculate Net Factor Income from Abroad (NFIA) as factor income from abroad (3030 million Naira) minus factor income paid abroad (7070 million Naira), yielding −40-40 million Naira. Gross National Product (GNP) is then calculated as GDP+NFIA=850+(−40)=810\text{GDP} + \text{NFIA} = 850 + (-40) = 810 million Naira. Finally, subtract capital consumption allowance (6565 million Naira) from GNP to get NNP=810−65=745\text{NNP} = 810 - 65 = 745 million Naira.

Step-by-Step Solution

1
Calculate Net Factor Income from Abroad (NFIA)
NFIA = 30−70=−4030 - 70 = -40 million Naira
Net Factor Income from Abroad is the difference between income received from abroad by residents and income paid to non-residents domestically.
2
Calculate Gross National Product (GNP)
GNP = 850+(−40)=810850 + (-40) = 810 million Naira
GNP is obtained by adjusting GDP for Net Factor Income from Abroad.
3
Calculate Net National Product (NNP)
NNP = 810−65=745810 - 65 = 745 million Naira
NNP is obtained by subtracting capital consumption allowance (depreciation) from GNP.

Key Concept

Calculation of Net National Product (NNP) from GDP, Net Factor Income from Abroad, and Depreciation
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Topics

Basic National Income Aggregates (GDP, GNP, NNP, NDP)

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