The following table presents the macroeconomic accounts of a West African economy for a given fiscal year: | Macroeconomic Aggregate / Component | Value (\text{N} million) | |---|---| | Private Consumption Expenditure (C) | 4,250 | | Government Final Consumption Expenditure (G) | 1,380 | | Gross Fix

The following table presents the macroeconomic accounts of a West African economy for a gi… — JAMB UTME

The following table presents the macroeconomic accounts of a West African economy for a given fiscal year:

Macroeconomic Aggregate / Component	Value ( $\text{N}$ million)
Private Consumption Expenditure ( $C$ )	4,250
Government Final Consumption Expenditure ( $G$ )	1,380
Gross Fixed Capital Formation	1,150
Increase in Stocks (Inventories)	160
Exports of Goods and Services ( $X$ )	720
Imports of Goods and Services ( $M$ )	890
Net Factor Income from Abroad	-110
Indirect Taxes	460
Subsidies	90
Consumption of Fixed Capital (Depreciation)	340

Using the expenditure method, what is the Net National Product at factor cost ( $NNP_{fc}$ ) of the country in millions of Naira?

Answer: 5950 million Naira

Answer

The Net National Product at factor cost (

NNP_{fc}

) of the country is 5,950 million Naira.

Using the expenditure approach, Gross Domestic Product at market prices (

GDP_{mp}

) is calculated as

C + I + G + (X - M)

. Gross Investment (

I

) equals Gross Fixed Capital Formation (

1,150

million Naira) plus Increase in Stocks (

160

million Naira), giving

1,310

million Naira. Thus,

GDP_{mp} = 4,250 + 1,310 + 1,380 + (720 - 890) = 6,770

million Naira. Adding Net Factor Income from Abroad (

-110

million Naira) yields

GNP_{mp} = 6,660

million Naira. Subtracting Net Indirect Taxes (

460 - 90 = 370

million Naira) gives

GNP_{fc} = 6,290

million Naira. Finally, deducting Consumption of Fixed Capital (

340

million Naira) results in Net National Product at factor cost (

NNP_{fc}

) of 5,950 million Naira.

Step-by-Step Solution

Determine Gross Private Domestic Investment (

I

)

I = 1,150 + 160 = 1,310

million Naira

Gross Private Domestic Investment comprises both gross fixed capital formation and physical additions to stocks or inventories.

Compute Net Exports (

X - M

)

Net Exports =

720 - 890 = -170

million Naira

Imports are subtracted from exports to obtain net foreign expenditure.

Calculate Gross Domestic Product at market prices (

GDP_{mp}

)

GDP_{mp} = 4,250 + 1,310 + 1,380 + (-170) = 6,770

million Naira

Under the expenditure method,

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

Convert

GDP_{mp}

to Gross National Product at market prices (

GNP_{mp}

)

GNP_{mp} = 6,770 + (-110) = 6,660

million Naira

Adding Net Factor Income from Abroad converts domestic output to national output.

Adjust for Net Indirect Taxes to find

GNP_{fc}

GNP_{fc} = 6,660 - (460 - 90) = 6,290

million Naira

Subtracting Net Indirect Taxes (Indirect Taxes minus Subsidies) converts market price valuations to factor cost valuations.

Deduct Depreciation to arrive at

NNP_{fc}

NNP_{fc} = 6,290 - 340 = 5,950

million Naira

Deducting consumption of fixed capital (depreciation) yields the net national income at factor cost.

Key Concept

Expenditure Method of Measuring National Income and Deriving Aggregates

Question

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