A developing economy recorded the following national income statistics for a given fiscal year: | Economic Component | Amount ( millions) | | :--- | :--- | | Compensation of employees | 520 | | Net operating surplus | 280 | | Mixed income of the self-employed | 150 | | Social security transfer payme

A developing economy recorded the following national income statistics for a given fiscal … — JAMB UTME

A developing economy recorded the following national income statistics for a given fiscal year:

Economic Component	Amount ($ millions)
Compensation of employees	$520$
Net operating surplus	$280$
Mixed income of the self-employed	$150$
Social security transfer payments	$60$
Consumption of fixed capital (Depreciation)	$40$
Net Factor Income from Abroad (NFIA)	$-25$

Based on the income method of measurement, what is the country's Gross National Product at factor cost ( $GNP_{FC}$ )?

$965 million

Under the income method, total factor earnings comprise compensation of employees (

520 million), net operating surplus (

280 million), and mixed income of the self-employed (

150 million), giving Net Domestic Product at factor cost (

NDP_{FC}

) of

950 million. Adding depreciation (

40 million) converts this to

GDP_{FC}

(

990 million). Finally, adjusting for Net Factor Income from Abroad (

-25 million) yields

GNP_{FC} = 990 + (-25) = \

965 million

. Social security transfer payments ($60 million) are omitted as non-factor receipts.

Exclude non-factor receipts and sum factor incomes to calculate Net Domestic Product at factor cost (

NDP_{FC}

NDP_{FC} = 520 + 280 + 150 = 950\text{ million}

. Transfer payments ($60 million) are excluded.

Transfer payments are unilateral payments received without providing productive factors/goods in return.

Add consumption of fixed capital (depreciation) to convert

NDP_{FC}

to Gross Domestic Product at factor cost (

GDP_{FC}

GDP_{FC} = 950 + 40 = 990\text{ million}

Gross aggregates include capital consumption allowance (depreciation), whereas net aggregates exclude it.

Add Net Factor Income from Abroad (NFIA) to

GDP_{FC}

to arrive at Gross National Product at factor cost (

GNP_{FC}

GNP_{FC} = 990 + (-25) = 965\text{ million}

GNP measures total income earned by residents regardless of location (

GNP = GDP + NFIA

Calculation of Gross National Product at factor cost (

GNP_{FC}

) using the Income Method

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