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

An economy recorded the following national income components in a fiscal year:

- Gross Domestic Product at market prices (GDPmp\text{GDP}_{\text{mp}}): N4,800 billion\text{N}4,800\text{ billion}
- Factor income earned by citizens from abroad: N320 billion\text{N}320\text{ billion}
- Factor income paid to foreign residents domestically: N470 billion\text{N}470\text{ billion}
- Capital consumption allowance (depreciation): N250 billion\text{N}250\text{ billion}

What is the value of the Net National Product at market prices (NNPmp\text{NNP}_{\text{mp}}) for this economy?

  1. N4,400 billion\text{N}4,400\text{ billion}Answer
  2. B
    N4,650 billion\text{N}4,650\text{ billion}
  3. C
    N4,700 billion\text{N}4,700\text{ billion}
  4. D
    N4,080 billion\text{N}4,080\text{ billion}

Answer

N4,400 billion\text{N}4,400\text{ billion}
Net National Product at market prices (NNPmp\text{NNP}_{\text{mp}}) is calculated by adding Net Factor Income from Abroad (NFIA\text{NFIA}) to GDPmp\text{GDP}_{\text{mp}} and subtracting capital consumption allowance (depreciation). Here, NFIA=N320 billion−N470 billion=−N150 billion\text{NFIA} = \text{N}320\text{ billion} - \text{N}470\text{ billion} = -\text{N}150\text{ billion}. Adding this to GDPmp\text{GDP}_{\text{mp}} yields GNPmp=N4,650 billion\text{GNP}_{\text{mp}} = \text{N}4,650\text{ billion}. Subtracting depreciation of N250 billion\text{N}250\text{ billion} gives N4,400 billion\text{N}4,400\text{ billion}.

Step-by-Step Solution

1
Calculate Net Factor Income from Abroad (NFIA)
NFIA=Income from abroad−Income paid abroad=320−470=−150 billion\text{NFIA} = \text{Income from abroad} - \text{Income paid abroad} = 320 - 470 = -150\text{ billion}
NFIA measures the net flow of factor earnings between citizens abroad and foreign residents within the domestic economy.
2
Compute Gross National Product at market prices (GNPmp\text{GNP}_{\text{mp}})
GNPmp=GDPmp+NFIA=4,800+(−150)=4,650 billion\text{GNP}_{\text{mp}} = \text{GDP}_{\text{mp}} + \text{NFIA} = 4,800 + (-150) = 4,650\text{ billion}
Converting GDP to GNP requires adding Net Factor Income from Abroad.
3
Deduct depreciation to determine Net National Product at market prices (NNPmp\text{NNP}_{\text{mp}})
NNPmp=GNPmp−Depreciation=4,650−250=4,400 billion\text{NNP}_{\text{mp}} = \text{GNP}_{\text{mp}} - \text{Depreciation} = 4,650 - 250 = 4,400\text{ billion}
Converting any gross national income aggregate to its net equivalent requires subtracting the capital consumption allowance.

Key Concept

Conversion identities between Gross Domestic Product (GDP), Gross National Product (GNP), and Net National Product (NNP) using Net Factor Income from Abroad (NFIA) and Depreciation.
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Topics

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

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