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

In a given fiscal year, a nation records a Gross Domestic Product (GDP) of $900 billion\$900\text{ billion} and a capital consumption allowance (depreciation) of $60 billion\$60\text{ billion}. What is the value of the country's Net Domestic Product (NDP)?

  1. $840 billion\$840\text{ billion}Answer
  2. B
    $960 billion\$960\text{ billion}
  3. C
    $900 billion\$900\text{ billion}
  4. D
    $540 billion\$540\text{ billion}

Answer

The Net Domestic Product (NDP) of the country is $840 billion\$840\text{ billion}.
Net Domestic Product (NDP) measures the net market value of all final goods and services produced within a country's boundaries. It is calculated by subtracting Capital Consumption Allowance (depreciation) from Gross Domestic Product (GDP): NDP=GDP−Depreciation=$900 billion−$60 billion=$840 billion\text{NDP} = \text{GDP} - \text{Depreciation} = \$900\text{ billion} - \$60\text{ billion} = \$840\text{ billion}.

Step-by-Step Solution

1
Identify the relationship between Gross Domestic Product (GDP), depreciation, and Net Domestic Product (NDP)
NDP=GDP−Depreciation\text{NDP} = \text{GDP} - \text{Depreciation}
Net aggregates account for the wear and tear of capital goods used during production.
2
Substitute the given numeric values into the national income accounting identity
NDP=$900 billion−$60 billion=$840 billion\text{NDP} = \$900\text{ billion} - \$60\text{ billion} = \$840\text{ billion}
Subtracting $60 billion\$60\text{ billion} from $900 billion\$900\text{ billion} yields the net value of domestic output.

Key Concept

Calculation of Net Domestic Product (NDP) from Gross Domestic Product (GDP)
Estimated Time:45s
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Topics

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

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