In a given financial year, an economy records a Net National Product (\text{NNP}) of \text… — JAMB UTME

In a given financial year, an economy records a Net National Product ( $\text{NNP}$ ) of $\text{N}6,200\text{ million}$ and a Capital Consumption Allowance (Depreciation) of $\text{N}450\text{ million}$ . The factor income earned by domestic citizens from abroad is $\text{N}320\text{ million}$ , while the factor income paid to foreign residents within the economy is $\text{N}510\text{ million}$ . What is the value of the Gross Domestic Product ( $\text{GDP}$ ) of this economy in million Naira?

Answer: 6840 million Naira

Answer

6840 million Naira

To calculate Gross Domestic Product (GDP), first derive Gross National Product (GNP) by adding Capital Consumption Allowance (Depreciation) to Net National Product (NNP):

\text{GNP} = 6,200 + 450 = 6,650\text{ million Naira}

. Next, compute Net Factor Income from Abroad (NFIA) as factor income received from abroad minus factor income paid to foreigners:

\text{NFIA} = 320 - 510 = -190\text{ million Naira}

. Finally, apply the national accounting identity

\text{GNP} = \text{GDP} + \text{NFIA}

, rearranged as

\text{GDP} = \text{GNP} - \text{NFIA} = 6,650 - (-190) = 6,840\text{ million Naira}

Step-by-Step Solution

Calculate Gross National Product (GNP) from Net National Product (NNP) and Depreciation

GNP = 6,200 + 450 = 6,650 million Naira

Gross aggregates include depreciation, whereas net aggregates exclude it:

\text{GNP} = \text{NNP} + \text{Depreciation}

Determine Net Factor Income from Abroad (NFIA)

NFIA = 320 - 510 = -190 million Naira

NFIA is defined as factor income earned from abroad by citizens minus factor income paid to foreign residents domestically.

Determine Gross Domestic Product (GDP) using GNP and NFIA

GDP = 6,650 - (-190) = 6,840 million Naira

Because

\text{GNP} = \text{GDP} + \text{NFIA}

, rearranging gives

\text{GDP} = \text{GNP} - \text{NFIA}

. Subtracting a negative value is equivalent to adding its positive magnitude.

Key Concept

Relationship between basic national income aggregates (GDP, GNP, NNP, NDP), Depreciation, and Net Factor Income from Abroad (NFIA).

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