An economy records a Gross Domestic Product (GDP) of 500 billion. The factor income earned… — JAMB UTME

An economy records a Gross Domestic Product (GDP) of $500 billion. The factor income earned by its citizens from abroad is$ 30 billion, while factor income paid to foreign residents domestically is $50 billion. If the capital consumption allowance (depreciation) is$ 40 billion, what is the Net National Product (NNP) of this economy?

$440 billionAnswer
B
$460 billion
C
$480 billion
D
$520 billion

Answer

$440 billion

To find Net National Product (NNP), first calculate Net Factor Income from Abroad (NFIA) by subtracting factor income paid to foreigners (

50 billion) from factor income earned from abroad (

30 billion), giving -

20 billion. Adding NFIA to GDP gives Gross National Product (GNP =

500 billion -

20 billion =

480 billion). Finally, subtracting capital consumption allowance (

40 billion) from GNP yields NNP equal to

440 billion.

Step-by-Step Solution

Calculate Net Factor Income from Abroad (NFIA)

NFIA = Factor income from abroad - Factor income paid abroad =

30 billion -

50 billion = -$20 billion

NFIA measures the net flow of income between domestic citizens earning abroad and foreign residents earning within the domestic economy.

Calculate Gross National Product (GNP)

GNP = GDP + NFIA =

500 billion + (-

20 billion) = $480 billion

GNP accounts for the total economic output produced by citizens of a nation regardless of geographic boundary.

Calculate Net National Product (NNP)

NNP = GNP - Depreciation =

480 billion -

40 billion = $440 billion

Deducting capital consumption allowance (depreciation) from GNP yields the net production available after accounting for capital wear and tear.

Key Concept

Conversion from Gross Domestic Product (GDP) to Gross National Product (GNP) and Net National Product (NNP)

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