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

An economy has a Gross National Product (GNP) of N750\text{N}750 million and a Net National Product (NNP) of N680\text{N}680 million. What is the value of the capital consumption allowance?

  1. N70\text{N}70 millionAnswer
  2. B
    N680\text{N}680 million
  3. C
    N750\text{N}750 million
  4. D
    N1,430\text{N}1,430 million

Answer

N70\text{N}70 million
The correct answer is derived by subtracting Net National Product (NNP) from Gross National Product (GNP). Since NNP reflects total production minus wear and tear on capital goods (depreciation), the difference between N750\text{N}750 million and N680\text{N}680 million equals the capital consumption allowance of N70\text{N}70 million.

Step-by-Step Solution

1
Identify the relationship between Gross National Product (GNP), Net National Product (NNP), and Capital Consumption Allowance (Depreciation).
NNP=GNP−Depreciation\text{NNP} = \text{GNP} - \text{Depreciation}
Net National Product represents gross national output after accounting for the depreciation of capital assets.
2
Rearrange the identity to solve for Depreciation (Capital Consumption Allowance).
Capital Consumption Allowance=GNP−NNP\text{Capital Consumption Allowance} = \text{GNP} - \text{NNP}
Isolating the depreciation component allows direct computation from given figures.
3
Substitute the given numerical values into the rearranged formula.
Capital Consumption Allowance=N750 million−N680 million=N70 million\text{Capital Consumption Allowance} = \text{N}750\text{ million} - \text{N}680\text{ million} = \text{N}70\text{ million}
Subtracting N680\text{N}680 million from N750\text{N}750 million yields the correct depreciation value.

Key Concept

Relationship between Gross and Net National Income Aggregates
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Topics

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

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