During a macroeconomic appraisal, the central statistical office of a nation reported a Gr… — JAMB UTME

During a macroeconomic appraisal, the central statistical office of a nation reported a Gross Domestic Product at market prices ( $GDP_{mp}$ ) of $\$1,250$ billion for the fiscal year. Additional national accounting records indicate Gross Domestic Capital Formation ( $I$ ) of $\$310$ billion, Government Final Consumption Expenditure ( $G$ ) of $\$240$ billion, Exports ( $X$ ) of $\$180$ billion, Imports ( $M$ ) of $\$215$ billion, Net Factor Income from Abroad ( $NFIA$ ) of $-\$45$ billion, Depreciation of $\$70$ billion, and Net Indirect Taxes of $\$55$ billion. Using the expenditure approach of national income accounting, what is the value of Private Final Consumption Expenditure ( $C$ )?

A
$\ me$ 665$ billion
B
$\ me$ 690$ billion
$\$735$ billionAnswer
D
$\$780$ billion

Answer

The Private Final Consumption Expenditure (

C

) is

\$735

billion.

Under the expenditure approach,

GDP_{mp} = C + I + G + (X - M)

. Substituting the given values gives

\$1,250 = C + \$310 + \$240 + (\$180 - \$215)

. Simplifying the right side yields

\$1,250 = C + \$515

, which gives

C = \$735

billion. Additional items such as Depreciation, Net Factor Income from Abroad, and Net Indirect Taxes are irrelevant for deriving

GDP_{mp}

components.

Step-by-Step Solution

Identify the relevant GDP expenditure method formula

GDP_{mp} = C + I + G + (X - M)

The expenditure method aggregates private consumption, gross investment, government spending, and net exports to measure total output at market prices.

Calculate Net Exports (

X - M

)

Net Exports =

\$180\text{ billion} - \$215\text{ billion} = -\$35\text{ billion}

Imports must be subtracted from exports to obtain the net export balance.

Substitute the known figures into the GDP identity

\$1,250 = C + \$310 + \$240 + (-\$35)

Plugging in the given values for

GDP_{mp}

I

G

, and

(X - M)

Solve for Private Final Consumption Expenditure (

C

)

\$1,250 = C + \$515 \implies C = \$1,250 - \$515 = \$735\text{ billion}

Rearranging the linear equation yields the correct figure for private consumption.

Key Concept

Expenditure Method of Measuring National Income

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