Expenditure Method of Measurement

15 questions

Question 1Question

The following macroeconomic data (in billions of Dollars) is provided for a country in a given fiscal year:

ComponentAmount ($ billions)
Consumer Expenditure (CC)500
Gross Private Domestic Investment (II)150
Government Consumption & Investment (GG)200
Exports (XX)80
Imports (MM)100

Using the expenditure method, what is the Gross Domestic Product (GDPGDP) of the country?

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Answer: 830830 billion

Answer

830830 billion
Under the expenditure approach, GDPGDP is calculated as the sum of personal consumption expenditure (CC), gross private domestic investment (II), government purchases (GG), and net exports (XMX - M). Substituting the given values yields 500+150+200+(80100)=85020=830500 + 150 + 200 + (80 - 100) = 850 - 20 = 830 billion dollars.

Step-by-Step Solution

1
Identify the national expenditure formula for calculating Gross Domestic Product (GDP).
GDP=C+I+G+(XM)GDP = C + I + G + (X - M)
The expenditure method sums private consumption, investment, government expenditure, and net exports.
2
Calculate Net Exports (XMX - M).
Net Exports =80100=20= 80 - 100 = -20 billion dollars
Imports must be subtracted from exports to derive net external trade expenditure.
3
Sum all expenditure components together.
GDP=500+150+200+(20)=830GDP = 500 + 150 + 200 + (-20) = 830 billion dollars
Adding consumption, investment, government purchases, and net exports gives the total GDP.

Key Concept

Expenditure Method of Measuring GDP
Estimated Time:45s
Question 2Question

The table below presents the national income accounting estimates for a hypothetical open economy in a given financial year:

ComponentAmount ($ billions)
Personal Consumption Expenditure450
Gross Domestic Fixed Capital Formation180
Value of Physical Change in Stocks30
Government Final Consumption Expenditure150
Government Transfer Payments35
Exports of Goods and Non-Factor Services90
Imports of Goods and Non-Factor Services110
Net Factor Income from Abroad-15
Depreciation (Consumption of Fixed Capital)40
Indirect Taxes50
Subsidies20

Using the expenditure approach, what is the Net National Product at factor cost (NNPfcNNP_{fc}) for this economy?

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Answer: 705705 billion

Answer

705705 billion
The expenditure method sums consumption, investment, government spending, and net exports to calculate GDPmpGDP_{mp} (450+210+15020=790450 + 210 + 150 - 20 = 790 billion). Adding net factor income from abroad gives GNPmpGNP_{mp} (775775 billion). Subtracting depreciation yields NNPmpNNP_{mp} (735735 billion), and deducting net indirect taxes (5020=3050 - 20 = 30 billion) gives NNPfc=705NNP_{fc} = 705 billion. Transfer payments are excluded to avoid double counting.

Step-by-Step Solution

1
Calculate Gross Domestic Product at market prices (GDPmpGDP_{mp}) using the expenditure components: C+I+G+(XM)C + I + G + (X - M)
GDPmp=450+(180+30)+150+(90110)=790GDP_{mp} = 450 + (180 + 30) + 150 + (90 - 110) = 790 billion
Gross domestic investment equals gross domestic fixed capital formation plus change in stocks. Transfer payments are excluded as they are non-productive transactions.
2
Adjust GDPmpGDP_{mp} for Net Factor Income from Abroad (NFIANFIA) to find Gross National Product at market prices (GNPmpGNP_{mp})
GNPmp=790+(15)=775GNP_{mp} = 790 + (-15) = 775 billion
GNPmp=GDPmp+NFIAGNP_{mp} = GDP_{mp} + NFIA.
3
Deduct depreciation (consumption of fixed capital) to determine Net National Product at market prices (NNPmpNNP_{mp})
NNPmp=77540=735NNP_{mp} = 775 - 40 = 735 billion
Net national aggregate equals gross national aggregate minus capital consumption.
4
Convert NNPmpNNP_{mp} to Net National Product at factor cost (NNPfcNNP_{fc})
NNPfc=73550+20=705NNP_{fc} = 735 - 50 + 20 = 705 billion
Factor cost is obtained by deducting indirect taxes and adding subsidies (NNPfc=NNPmpIndirect Taxes+SubsidiesNNP_{fc} = NNP_{mp} - \text{Indirect Taxes} + \text{Subsidies}).

Key Concept

Expenditure Method of Measuring National Income and Aggregate Adjustments
Question 3Question

An economy recorded the following macroeconomic expenditure components during a fiscal year: Personal Consumption Expenditure (CC) of $650\$650 million, Gross Private Domestic Investment (II) of $220\$220 million, Government Purchase of Goods and Services (GG) of $310\$310 million, Exports (XX) of $140\$140 million, and Imports (MM) of $160\$160 million. Additionally, Net Factor Income from Abroad (NFIANFIA) was $25\$25 million. Calculate the Gross National Product at market price (GNPmpGNP_{mp}) of this economy in millions of dollars.

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Answer: 1185

Answer

The Gross National Product at market price (GNPmpGNP_{mp}) of the economy is 11851185 million dollars.
Using the expenditure method, Gross Domestic Product (GDPmpGDP_{mp}) is calculated as C+I+G+(XM)=650+220+310+(140160)=1160C + I + G + (X - M) = 650 + 220 + 310 + (140 - 160) = 1160 million dollars. Adding Net Factor Income from Abroad (NFIA=25NFIA = 25 million dollars) yields the Gross National Product (GNPmp=1160+25=1185GNP_{mp} = 1160 + 25 = 1185 million dollars).

Step-by-Step Solution

1
Calculate Gross Domestic Product at market price (GDPmpGDP_{mp}) using the expenditure approach formula: GDPmp=C+I+G+(XM)GDP_{mp} = C + I + G + (X - M).
GDPmp=650+220+310+(140160)=1160GDP_{mp} = 650 + 220 + 310 + (140 - 160) = 1160 million dollars.
The expenditure method sums private consumption, gross investment, government purchases, and net exports (XMX - M) to determine total domestic output.
2
Adjust GDPmpGDP_{mp} by adding Net Factor Income from Abroad (NFIANFIA) to derive Gross National Product at market price (GNPmpGNP_{mp}): GNPmp=GDPmp+NFIAGNP_{mp} = GDP_{mp} + NFIA.
GNPmp=1160+25=1185GNP_{mp} = 1160 + 25 = 1185 million dollars.
Gross National Product measures total income earned by residents of a nation, requiring the inclusion of net factor income earned from overseas.

Key Concept

Measurement of Gross National Product via Expenditure Approach
Estimated Time:1m 30s
Question 4Question

The national income statistics for the Republic of Eldoria in a given fiscal year record the following expenditure components (in millions of dollars):

- Household Consumption Expenditure (CC): $420\$420
- Gross Private Domestic Investment (II): $150\$150
- Government Final Expenditure (GG): $180\$180
- Export Revenues (XX): $85\$85
- Import Expenditures (MM): $95\$95
- Net Factor Income Paid to Abroad: $15\$15

What is Eldoria's Gross National Product (GNPGNP) at market prices?

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Answer: $725\$725 million

Answer

The Gross National Product (GNP) at market prices is $725\$725 million.
The expenditure approach defines GDP=C+I+G+(XM)GDP = C + I + G + (X - M). Substituting the given figures gives GDP=420+150+180+(8595)=740GDP = 420 + 150 + 180 + (85 - 95) = 740 million dollars. To find GNPGNP, net factor income from abroad is added. Since net factor income was paid to abroad (an outflow of 15 million dollars), NFIA=15NFIA = -15 million dollars. Therefore, GNP=74015=725GNP = 740 - 15 = 725 million dollars.

Step-by-Step Solution

1
Calculate Gross Domestic Product (GDP) using the expenditure formula: GDP=C+I+G+(XM)GDP = C + I + G + (X - M)
GDP=420+150+180+(8595)=750+(10)=$740GDP = 420 + 150 + 180 + (85 - 95) = 750 + (-10) = \$740 million
The expenditure approach sums consumption, investment, government spending, and net exports (exports minus imports).
2
Determine Net Factor Income from Abroad (NFIA)
Since net factor income is paid to abroad (outflow), NFIA=$15NFIA = -\$15 million
Factor income flowing out of the domestic economy reduces the national income earned by citizens.
3
Convert GDP to GNP using the relation: GNP=GDP+NFIAGNP = GDP + NFIA
GNP=740+(15)=$725GNP = 740 + (-15) = \$725 million
Gross National Product measures total output created by residents of a country, regardless of location.

Key Concept

Expenditure Method of National Income Accounting
Question 5Question

In a given fiscal year, the national accounts of a nation reveal the following expenditure figures: Personal consumption spending (CC) is $400\$400 billion, gross private domestic investment (II) is $150\$150 billion, government expenditures (GG) total $120\$120 billion, exports (XX) stand at $80\$80 billion, and imports (MM) are $50\$50 billion. Calculate the Gross Domestic Product (GDP) of the nation in billions of dollars using the expenditure approach.

Show answer & explanation

Answer: 700

Answer

The Gross Domestic Product (GDP) of the nation calculated using the expenditure approach is $700 billion.
The expenditure approach determines GDP by combining aggregate spending components: GDP=C+I+G+(XM)GDP = C + I + G + (X - M). Substituting the given values yields: GDP=400+150+120+(8050)=700GDP = 400 + 150 + 120 + (80 - 50) = 700 billion dollars.

Step-by-Step Solution

1
Identify the formula for calculating Gross Domestic Product (GDP) via the expenditure approach
GDP = C + I + G + (X - M)
The expenditure method sums all final expenditures on goods and services within an economy.
2
Calculate net exports by subtracting imports (M) from exports (X)
Net Exports = 80billion80 billion - 50 billion = $30 billion
Imports represent expenditures on foreign-produced goods and must be subtracted to isolate domestic output.
3
Add consumption spending (C), investment (I), government spending (G), and net exports (X - M)
GDP = 400billion+400 billion + 150 billion + 120billion+120 billion + 30 billion = $700 billion
Combining total spending across all macroeconomic sectors yields the aggregate Gross Domestic Product.

Key Concept

Expenditure Method of Measuring GDP
Question 6Question

The following macroeconomic national income data are provided for a country in a given financial year (in millions of Naira):

Macroeconomic ComponentAmount (N\text{N} millions)
Personal consumption expenditure (CC)540540
Gross private domestic investment (II)185185
Government final expenditure (GG)210210
Exports (XX)130130
Imports (MM)155155
Net factor income from abroad (NFIANFIA)30-30
Consumption of fixed capital4545
Indirect taxes6565
Subsidies2020

Using the expenditure approach, calculate the Net National Product at factor cost (NNPfcNNP_{fc}) in millions of Naira.

Show answer & explanation

Answer: 790

Answer

The Net National Product at factor cost (NNPfcNNP_{fc}) is 790 million Naira.
To calculate Net National Product at factor cost (NNPfcNNP_{fc}) via the expenditure method: First, calculate Gross Domestic Product at market prices (GDPmp=C+I+G+XM=540+185+210+130155=910GDP_{mp} = C + I + G + X - M = 540 + 185 + 210 + 130 - 155 = 910). Next, add Net Factor Income from Abroad (NFIANFIA) to obtain Gross National Product at market prices (GNPmp=91030=880GNP_{mp} = 910 - 30 = 880). Then, deduct depreciation to obtain Net National Product at market prices (NNPmp=88045=835NNP_{mp} = 880 - 45 = 835). Finally, adjust for indirect taxes and subsidies (NNPfc=83565+20=790NNP_{fc} = 835 - 65 + 20 = 790 million Naira).

Step-by-Step Solution

1
Calculate Gross Domestic Product at market prices (GDPmpGDP_{mp})
GDPmp=540+185+210+(130155)=910GDP_{mp} = 540 + 185 + 210 + (130 - 155) = 910 million Naira
Apply the basic expenditure identity GDP=C+I+G+(XM)GDP = C + I + G + (X - M).
2
Calculate Gross National Product at market prices (GNPmpGNP_{mp})
GNPmp=910+(30)=880GNP_{mp} = 910 + (-30) = 880 million Naira
Add Net Factor Income from Abroad (NFIANFIA) to GDPmpGDP_{mp}.
3
Calculate Net National Product at market prices (NNPmpNNP_{mp})
NNPmp=88045=835NNP_{mp} = 880 - 45 = 835 million Naira
Subtract capital consumption allowance (depreciation) from GNPmpGNP_{mp}.
4
Adjust NNPmpNNP_{mp} for net indirect taxes to arrive at NNPfcNNP_{fc}
NNPfc=83565+20=790NNP_{fc} = 835 - 65 + 20 = 790 million Naira
Subtract indirect taxes and add subsidies to convert market price valuation into factor cost valuation.

Key Concept

Calculation of Net National Product at factor cost (NNPfcNNP_{fc}) from macroeconomic expenditure components.
Question 7Question

During a macroeconomic appraisal, the central statistical office of a nation reported a Gross Domestic Product at market prices (GDPmpGDP_{mp}) of $1,250\$1,250 billion for the fiscal year. Additional national accounting records indicate Gross Domestic Capital Formation (II) of $310\$310 billion, Government Final Consumption Expenditure (GG) of $240\$240 billion, Exports (XX) of $180\$180 billion, Imports (MM) of $215\$215 billion, Net Factor Income from Abroad (NFIANFIA) of $45-\$45 billion, Depreciation of $70\$70 billion, and Net Indirect Taxes of $55\$55 billion. Using the expenditure approach of national income accounting, what is the value of Private Final Consumption Expenditure (CC)?

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Answer: $735\$735 billion

Answer

The Private Final Consumption Expenditure (CC) is $735\$735 billion.
Under the expenditure approach, GDPmp=C+I+G+(XM)GDP_{mp} = C + I + G + (X - M). Substituting the given values gives $1,250=C+$310+$240+($180$215)\$1,250 = C + \$310 + \$240 + (\$180 - \$215). Simplifying the right side yields $1,250=C+$515\$1,250 = C + \$515, which gives C=$735C = \$735 billion. Additional items such as Depreciation, Net Factor Income from Abroad, and Net Indirect Taxes are irrelevant for deriving GDPmpGDP_{mp} components.

Step-by-Step Solution

1
Identify the relevant GDP expenditure method formula
GDPmp=C+I+G+(XM)GDP_{mp} = C + I + G + (X - M)
The expenditure method aggregates private consumption, gross investment, government spending, and net exports to measure total output at market prices.
2
Calculate Net Exports (XMX - M)
Net Exports = $180 billion$215 billion=$35 billion\$180\text{ billion} - \$215\text{ billion} = -\$35\text{ billion}
Imports must be subtracted from exports to obtain the net export balance.
3
Substitute the known figures into the GDP identity
$1,250=C+$310+$240+($35)\$1,250 = C + \$310 + \$240 + (-\$35)
Plugging in the given values for GDPmpGDP_{mp}, II, GG, and (XM)(X - M).
4
Solve for Private Final Consumption Expenditure (CC)
$1,250=C+$515    C=$1,250$515=$735 billion\$1,250 = C + \$515 \implies C = \$1,250 - \$515 = \$735\text{ billion}
Rearranging the linear equation yields the correct figure for private consumption.

Key Concept

Expenditure Method of Measuring National Income
Question 8Question

The national statistics bureau of a developing economy released the following macroeconomic estimates for a given financial year:

Macroeconomic ComponentAmount ($ million)
Gross Fixed Capital Formation350
Changes in Inventories50
Government Final Consumption Expenditure250
Exports of Goods and Services180
Imports of Goods and Services220
Net Factor Income from Abroad-30
Consumption of Fixed Capital60
Indirect Taxes80
Subsidies20
Government Transfer Payments45
Intermediate Purchases110

If the Net National Product at factor cost (NNPfcNNP_{fc}) for the economy was calculated as $960\$960 million, what was the value of Private Final Consumption Expenditure (CC)?

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Answer: 500500 million

Answer

500500 million
The correct answer is 500500 million. GDPmpGDP_{mp} is derived by converting NNPfcNNP_{fc} back to market prices: GDPmp=960(30)+60+8020=1110GDP_{mp} = 960 - (-30) + 60 + 80 - 20 = 1110 million. Substituting total gross investment (400400 million), government final consumption (250250 million), and net exports (40-40 million) into GDPmp=C+I+G+(XM)GDP_{mp} = C + I + G + (X - M) yields 1110=C+6101110 = C + 610, which solves to C=500C = 500 million. Transfer payments and intermediate purchases are correctly excluded.

Step-by-Step Solution

1
Examine the relationship between Net National Product at factor cost (NNPfcNNP_{fc}) and Gross Domestic Product at market prices (GDPmpGDP_{mp}).
NNPfc=GDPmp+NFIADepreciationIndirect Taxes+SubsidiesNNP_{fc} = GDP_{mp} + \text{NFIA} - \text{Depreciation} - \text{Indirect Taxes} + \text{Subsidies}
Converting from factor cost to market prices requires reversing net indirect taxes, while converting NNP to GDP requires adjusting for net factor income from abroad and capital consumption.
2
Substitute the given aggregates to solve for GDPmpGDP_{mp}.
960=GDPmp+(30)6080+20    960=GDPmp150    GDPmp=1110960 = GDP_{mp} + (-30) - 60 - 80 + 20 \implies 960 = GDP_{mp} - 150 \implies GDP_{mp} = 1110 million
Transfer payments (4545 million) and intermediate purchases (110110 million) are unearned transfers and intermediate inputs respectively, so they must be completely excluded to avoid double counting.
3
Calculate Gross Investment (II) and Net Exports (XMX - M).
I=350+50=400I = 350 + 50 = 400 million; Net Exports (XMX - M) =180220=40= 180 - 220 = -40 million
Gross investment consists of gross fixed capital formation plus inventory adjustments. Net exports equal total exports minus total imports.
4
Use the expenditure identity GDPmp=C+I+G+(XM)GDP_{mp} = C + I + G + (X - M) to determine Private Final Consumption Expenditure (CC).
1110=C+400+250+(40)    1110=C+610    C=5001110 = C + 400 + 250 + (-40) \implies 1110 = C + 610 \implies C = 500 million
Subtracting non-consumption expenditure components from total GDP at market price leaves private final consumption expenditure.

Key Concept

Expenditure Approach to National Income Measurement
Question 9Question

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.

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Answer: 1270

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+(XM)=850+320+280+(190230)=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=136560=1305NNP_{mp} = 1365 - 60 = 1305 billion Naira. Finally, subtracting net indirect taxes gives NNPfc=130535=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+(XM)=850+320+280+(190230)=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=GNPmpCapital Consumption Allowance=136560=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=NNPmpNet Indirect Taxes=130535=1270NNP_{fc} = NNP_{mp} - \text{Net Indirect Taxes} = 1305 - 35 = 1270.

Key Concept

Expenditure Method of Measuring National Income and Aggregate Adjustments
Question 10Question

The central statistical office of a sovereign economy released the following national income estimates for a given fiscal year:

Economic IndicatorValue ($)
Net National Product at factor cost (NNPfcNNP_{fc})850850 billion
Net Factor Income from Abroad (NFIANFIA)$30-\$30 billion
Depreciation (Capital Consumption Allowance)$60\$60 billion
Indirect Taxes$70\$70 billion
Subsidies$20\$20 billion
Private Final Consumption Expenditure (CC)$520\$520 billion
Government Final Consumption Expenditure (GG)$210\$210 billion
Changes in Stocks (Inventory Investment)$40\$40 billion
Net Exports (XMX - M)$15-\$15 billion

Based on the expenditure method of measuring national income, what is the value of Gross Domestic Fixed Capital Formation?

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Answer: $235\$235 billion

Answer

The Gross Domestic Fixed Capital Formation is $235\$235 billion.
To find the Gross Domestic Fixed Capital Formation, we first calculate GDPmpGDP_{mp} from NNPfcNNP_{fc}:
1. NNPmp=NNPfc+Indirect TaxesSubsidies=850+7020=$900NNP_{mp} = NNP_{fc} + \text{Indirect Taxes} - \text{Subsidies} = 850 + 70 - 20 = \$900 billion.
2. GNPmp=NNPmp+Depreciation=900+60=$960GNP_{mp} = NNP_{mp} + \text{Depreciation} = 900 + 60 = \$960 billion.
3. GDPmp=GNPmpNFIA=960(30)=$990GDP_{mp} = GNP_{mp} - NFIA = 960 - (-30) = \$990 billion.

Under the expenditure approach, GDPmp=C+Ifixed+ΔStock+G+(XM)GDP_{mp} = C + I_{\text{fixed}} + \Delta\text{Stock} + G + (X - M).
Substituting the given values:
990=520+Ifixed+40+21015990 = 520 + I_{\text{fixed}} + 40 + 210 - 15
990=Ifixed+755    Ifixed=$235990 = I_{\text{fixed}} + 755 \implies I_{\text{fixed}} = \$235 billion.

Step-by-Step Solution

1
Convert Net National Product at factor cost (NNPfcNNP_{fc}) to Net National Product at market prices (NNPmpNNP_{mp}).
NNPmp=NNPfc+Indirect TaxesSubsidies=850+7020=$900NNP_{mp} = NNP_{fc} + \text{Indirect Taxes} - \text{Subsidies} = 850 + 70 - 20 = \$900 billion.
Market price valuation includes net indirect taxes (indirect taxes minus subsidies).
2
Convert NNPmpNNP_{mp} to Gross National Product at market prices (GNPmpGNP_{mp}).
GNPmp=NNPmp+Depreciation=900+60=$960GNP_{mp} = NNP_{mp} + \text{Depreciation} = 900 + 60 = \$960 billion.
Gross aggregates include capital consumption allowance (depreciation).
3
Convert GNPmpGNP_{mp} to Gross Domestic Product at market prices (GDPmpGDP_{mp}).
GDPmp=GNPmpNFIA=960(30)=960+30=$990GDP_{mp} = GNP_{mp} - NFIA = 960 - (-30) = 960 + 30 = \$990 billion.
Gross Domestic Product equals Gross National Product minus Net Factor Income from Abroad.
4
Apply the expenditure formula for GDPmpGDP_{mp} to isolate Gross Domestic Fixed Capital Formation (IfixedI_{\text{fixed}}).
GDPmp=C+Ifixed+ΔStock+G+(XM)    990=520+Ifixed+40+210+(15)    990=Ifixed+755    Ifixed=990755=$235GDP_{mp} = C + I_{\text{fixed}} + \Delta\text{Stock} + G + (X - M) \implies 990 = 520 + I_{\text{fixed}} + 40 + 210 + (-15) \implies 990 = I_{\text{fixed}} + 755 \implies I_{\text{fixed}} = 990 - 755 = \$235 billion.
Total investment expenditure (Gross Capital Formation) consists of Gross Domestic Fixed Capital Formation plus Changes in Stocks.

Key Concept

Expenditure Method of National Income Accounting and Aggregate Conversion
Question 11Question

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

Macroeconomic Aggregate / ComponentValue (N\text{N} million)
Private Consumption Expenditure (CC)4,250
Government Final Consumption Expenditure (GG)1,380
Gross Fixed Capital Formation1,150
Increase in Stocks (Inventories)160
Exports of Goods and Services (XX)720
Imports of Goods and Services (MM)890
Net Factor Income from Abroad-110
Indirect Taxes460
Subsidies90
Consumption of Fixed Capital (Depreciation)340

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

Show answer & explanation

Answer: 5950

Answer

The Net National Product at factor cost (NNPfcNNP_{fc}) of the country is 5,950 million Naira.
Using the expenditure approach, Gross Domestic Product at market prices (GDPmpGDP_{mp}) is calculated as C+I+G+(XM)C + I + G + (X - M). Gross Investment (II) equals Gross Fixed Capital Formation (1,1501,150 million Naira) plus Increase in Stocks (160160 million Naira), giving 1,3101,310 million Naira. Thus, GDPmp=4,250+1,310+1,380+(720890)=6,770GDP_{mp} = 4,250 + 1,310 + 1,380 + (720 - 890) = 6,770 million Naira. Adding Net Factor Income from Abroad (110-110 million Naira) yields GNPmp=6,660GNP_{mp} = 6,660 million Naira. Subtracting Net Indirect Taxes (46090=370460 - 90 = 370 million Naira) gives GNPfc=6,290GNP_{fc} = 6,290 million Naira. Finally, deducting Consumption of Fixed Capital (340340 million Naira) results in Net National Product at factor cost (NNPfcNNP_{fc}) of 5,950 million Naira.

Step-by-Step Solution

1
Determine Gross Private Domestic Investment (II)
I=1,150+160=1,310I = 1,150 + 160 = 1,310 million Naira
Gross Private Domestic Investment comprises both gross fixed capital formation and physical additions to stocks or inventories.
2
Compute Net Exports (XMX - M)
Net Exports = 720890=170720 - 890 = -170 million Naira
Imports are subtracted from exports to obtain net foreign expenditure.
3
Calculate Gross Domestic Product at market prices (GDPmpGDP_{mp})
GDPmp=4,250+1,310+1,380+(170)=6,770GDP_{mp} = 4,250 + 1,310 + 1,380 + (-170) = 6,770 million Naira
Under the expenditure method, GDPmp=C+I+G+(XM)GDP_{mp} = C + I + G + (X - M).
4
Convert GDPmpGDP_{mp} to Gross National Product at market prices (GNPmpGNP_{mp})
GNPmp=6,770+(110)=6,660GNP_{mp} = 6,770 + (-110) = 6,660 million Naira
Adding Net Factor Income from Abroad converts domestic output to national output.
5
Adjust for Net Indirect Taxes to find GNPfcGNP_{fc}
GNPfc=6,660(46090)=6,290GNP_{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.
6
Deduct Depreciation to arrive at NNPfcNNP_{fc}
NNPfc=6,290340=5,950NNP_{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 12Question

The national economic accounts for the Republic of Kwararafa in a given fiscal year are as follows:

- Personal Consumption Expenditure (CC): ��450 billion\text{��}450\text{ billion}
- Gross Private Domestic Investment (II): 180 billion\text{₦}180\text{ billion}
- Government Spending (GG): 220 billion\text{₦}220\text{ billion}
- Exports (XX): 95 billion\text{₦}95\text{ billion}
- Imports (MM): 115 billion\text{₦}115\text{ billion}
- Net Factor Income from Abroad (NFIANFIA): 15 billion-\text{₦}15\text{ billion}
- Capital Consumption Allowance: 40 billion\text{₦}40\text{ billion}

Based on the expenditure method, calculate the Gross National Product (GNP) at market prices in billions of Naira.

Show answer & explanation

Answer: 815

Answer

815 billion Naira
The Gross Domestic Product (GDP) is computed as GDP=C+I+G+(XM)=450+180+220+(95115)=830 billion NairaGDP = C + I + G + (X - M) = 450 + 180 + 220 + (95 - 115) = 830\text{ billion Naira}. Adjusting for Net Factor Income from Abroad gives GNP=GDP+NFIA=830+(15)=815 billion NairaGNP = GDP + NFIA = 830 + (-15) = 815\text{ billion Naira}.

Step-by-Step Solution

1
Compute Gross Domestic Product (GDP) via expenditure approach
GDP=C+I+G+(XM)=450+180+220+(95115)=830 billion NairaGDP = C + I + G + (X - M) = 450 + 180 + 220 + (95 - 115) = 830\text{ billion Naira}
The expenditure method sums all spending on final output produced domestically.
2
Adjust GDP for Net Factor Income from Abroad (NFIA) to obtain Gross National Product (GNP)
GNP=GDP+NFIA=830+(15)=815 billion NairaGNP = GDP + NFIA = 830 + (-15) = 815\text{ billion Naira}
GNP measures total income earned by residents of a country, incorporating net earnings from foreign transactions.

Key Concept

Expenditure Method of National Income Accounting
Estimated Time:1m 30s
Question 13Question

The national income data for a sovereign country in a given financial year are presented in the table below:

Macroeconomic ComponentValue (in billions of Naira)
Personal Consumption Expenditure (CC)450
Gross Private Domestic Investment (II)180
Government Purchase of Goods and Services (GG)140
Exports (XX)85
Imports (MM)95
Net Factor Income from Abroad (NFIA\text{NFIA})-15
Capital Consumption Allowance (Depreciation)25

Using the expenditure approach, what is the Gross National Product (GNP\text{GNP}) of the economy?

Show answer & explanation

Answer: ₦745 billion

Answer

The Gross National Product (GNP) of the economy is ₦745 billion.
Under the expenditure method, Gross Domestic Product (GDP\text{GDP}) is derived using the formula GDP=C+I+G+(XM)\text{GDP} = C + I + G + (X - M). Substituting the given figures gives GDP=450+180+140+(8595)=760\text{GDP} = 450 + 180 + 140 + (85 - 95) = 760 billion Naira. Gross National Product (GNP\text{GNP}) is obtained by adding Net Factor Income from Abroad (NFIA\text{NFIA}) to GDP\text{GDP}: GNP=760+(15)=745\text{GNP} = 760 + (-15) = 745 billion Naira.

Step-by-Step Solution

1
Calculate Net Exports (X - M)
Net Exports = 85 - 95 = -10 billion Naira
Net exports represent the difference between total exports and total imports.
2
Calculate Gross Domestic Product (GDP) using the expenditure formula: GDP = C + I + G + (X - M)
GDP = 450 + 180 + 140 + (-10) = 760 billion Naira
The expenditure method aggregates private consumption, gross investment, government spending, and net exports.
3
Convert GDP to Gross National Product (GNP): GNP = GDP + Net Factor Income from Abroad (NFIA)
GNP = 760 + (-15) = 745 billion Naira
GNP measures total income earned by residents of a country, incorporating net earnings from foreign operations.

Key Concept

Expenditure Method of Measuring National Income and GDP to GNP Conversion
Estimated Time:1m 30s
Question 14Question

The following macroeconomic indicators (in billions of Naira) were released for an open economy during a given fiscal period:

Macroeconomic ComponentAmount (₦ billion)
Household Final Consumption Expenditure (CC)400400
Government Final Consumption Expenditure (GG)150150
Gross Domestic Fixed Capital Formation120120
Increase in Value of Stocks (Inventories)3030
Exports of Goods and Services (XX)8080
Imports of Goods and Services (MM)9090
Net Factor Income from Abroad (NFIANFIA)2020

Using the expenditure method, what is the Gross National Product (GNPGNP) at market prices for this economy?

Show answer & explanation

Answer: ₦710 billion

Answer

The Gross National Product (GNP) at market prices is ₦710 billion.
Under the expenditure approach, national income is measured as GDP=C+I+G+(XM)\text{GDP} = C + I + G + (X - M). Here, private consumption (CC) is 400400, government expenditure (GG) is 150150, total investment (II) is 120+30=150120 + 30 = 150, and net exports (XMX - M) is 8090=1080 - 90 = -10. Adding these gives GDP=400+150+15010=690\text{GDP} = 400 + 150 + 150 - 10 = 690 billion Naira. To find GNP\text{GNP}, Net Factor Income from Abroad (2020 billion Naira) is added to GDP\text{GDP}, yielding GNP=690+20=710\text{GNP} = 690 + 20 = 710 billion Naira.

Step-by-Step Solution

1
Calculate Total Gross Investment (I)
I=120+30=150 billion NairaI = 120 + 30 = 150\text{ billion Naira}
Gross investment consists of Gross Domestic Fixed Capital Formation plus the increase in inventory stocks.
2
Calculate Net Exports (X - M)
Net Exports=8090=10 billion Naira\text{Net Exports} = 80 - 90 = -10\text{ billion Naira}
Net exports equal total exports minus total imports.
3
Calculate Gross Domestic Product (GDP) using the expenditure formula
GDP=C+I+G+(XM)=400+150+150+(10)=690 billion Naira\text{GDP} = C + I + G + (X - M) = 400 + 150 + 150 + (-10) = 690\text{ billion Naira}
The expenditure approach aggregates consumption, investment, government spending, and net exports.
4
Convert GDP to Gross National Product (GNP)
GNP=GDP+NFIA=690+20=710 billion Naira\text{GNP} = \text{GDP} + \text{NFIA} = 690 + 20 = 710\text{ billion Naira}
GNP is derived by adding Net Factor Income from Abroad to GDP.

Key Concept

Expenditure Method of Measuring National Income and GNP Conversion
Estimated Time:1m 30s
Question 15Question

The following macroeconomic data (in billions of Naira) were released for the Republic of Veridia for a given fiscal year:

- Personal Consumption Expenditure (CC): 520 billion\text{₦}520\text{ billion}
- Gross Domestic Fixed Capital Formation: 180 billion\text{₦}180\text{ billion}
- Value of Physical Change in Stocks: 25 billion\text{₦}25\text{ billion}
- Government Final Consumption Expenditure (GG): 210 billion\text{₦}210\text{ billion}
- Exports (XX): 95 billion\text{₦}95\text{ billion}
- Imports (MM): 115 billion\text{₦}115\text{ billion}
- Net Factor Income from Abroad: 35 billion\text{₦}35\text{ billion}

Using the expenditure method of national income measurement, what is the value of the Gross National Product (GNP) at market prices in billions of Naira?

Show answer & explanation

Answer: 950

Answer

The Gross National Product (GNP) at market prices is 950 billion Naira.
The expenditure method aggregates expenditure components as follows: Personal Consumption (C=520C = 520), Gross Investment (I=180+25=205I = 180 + 25 = 205), Government Expenditure (G=210G = 210), and Net Exports (XM=95115=20X - M = 95 - 115 = -20). Summing these gives GDP = 520+205+21020=915 billion Naira520 + 205 + 210 - 20 = 915\text{ billion Naira}. Adding Net Factor Income from Abroad (35 billion Naira35\text{ billion Naira}) yields GNP = 915+35=950 billion Naira915 + 35 = 950\text{ billion Naira}.

Step-by-Step Solution

1
Calculate total Gross Investment (I)
Gross Investment = 180 + 25 = 205 billion Naira
Total investment expenditure includes both fixed capital formation and the physical change in inventory/stocks.
2
Calculate Net Exports (X - M)
Net Exports = 95 - 115 = -20 billion Naira
Net exports represent expenditure by foreigners on domestic goods minus domestic expenditure on foreign goods.
3
Calculate Gross Domestic Product (GDP)
GDP = 520 + 205 + 210 + (-20) = 915 billion Naira
Under the expenditure approach, GDP = C + I + G + (X - M).
4
Calculate Gross National Product (GNP)
GNP = GDP + Net Factor Income from Abroad = 915 + 35 = 950 billion Naira
GNP accounts for income earned by domestic factors of production abroad minus income earned by foreign factors of production domestically.

Key Concept

Expenditure Method of Measuring National Income and GNP Calculation
Estimated Time:1m 30s
Expenditure Method of Measurement Practice Questions — JAMB UTME | Examkin