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Difficulty: HardExpenditure Method of Measurement

The national accounts of the Republic of Zaria for a given fiscal year present the following macroeconomic components (in billions of Naira):

- Personal Consumption Expenditure (CC): 850
- Gross Domestic Private Investment (II): 320
- Government Final Consumption Spending (GG): 280
- Exports (XX): 190
- Imports (MM): 230
- Net Factor Income from Abroad (NFIANFIA): -45
- Capital Consumption Allowance: 60
- Net Indirect Taxes (Indirect Taxes minus Subsidies): 35

Calculate the Net National Product at factor cost (NNPfcNNP_{fc}) in billions of Naira.

Answer: 1270 billion Naira

Answer

The Net National Product at factor cost (NNPfcNNP_{fc}) is 1270 billion Naira.
The correct calculation follows the expenditure approach sequentially: GDPmp=C+I+G+(X−M)=850+320+280+(190−230)=1410GDP_{mp} = C + I + G + (X - M) = 850 + 320 + 280 + (190 - 230) = 1410 billion Naira. Adding Net Factor Income from Abroad yields GNPmp=1410+(−45)=1365GNP_{mp} = 1410 + (-45) = 1365 billion Naira. Subtracting depreciation gives NNPmp=1365−60=1305NNP_{mp} = 1365 - 60 = 1305 billion Naira. Finally, subtracting net indirect taxes gives NNPfc=1305−35=1270NNP_{fc} = 1305 - 35 = 1270 billion Naira.

Step-by-Step Solution

1
Calculate Gross Domestic Product at market prices (GDPmpGDP_{mp})
GDPmp=1410GDP_{mp} = 1410 billion Naira
According to the expenditure method, GDPmp=C+I+G+(X−M)=850+320+280+(190−230)=1410GDP_{mp} = C + I + G + (X - M) = 850 + 320 + 280 + (190 - 230) = 1410.
2
Adjust GDPmpGDP_{mp} to obtain Gross National Product at market prices (GNPmpGNP_{mp})
GNPmp=1365GNP_{mp} = 1365 billion Naira
GNPmp=GDPmp+NFIA=1410+(−45)=1365GNP_{mp} = GDP_{mp} + NFIA = 1410 + (-45) = 1365.
3
Deduct depreciation to obtain Net National Product at market prices (NNPmpNNP_{mp})
NNPmp=1305NNP_{mp} = 1305 billion Naira
NNPmp=GNPmp−Capital Consumption Allowance=1365−60=1305NNP_{mp} = GNP_{mp} - \text{Capital Consumption Allowance} = 1365 - 60 = 1305.
4
Convert NNPmpNNP_{mp} to Net National Product at factor cost (NNPfcNNP_{fc})
NNPfc=1270NNP_{fc} = 1270 billion Naira
NNPfc=NNPmp−Net Indirect Taxes=1305−35=1270NNP_{fc} = NNP_{mp} - \text{Net Indirect Taxes} = 1305 - 35 = 1270.

Key Concept

Expenditure Method of Measuring National Income and Aggregate Adjustments
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Topics

Expenditure Method of Measurement

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