Vantoria's national statistics office has collected the following data for last year (all figures in $ billion). Item $ billion Consumption (C) 180 Investment (I) 60 Government spending (G) 50 Exports (X) 40 Imports (M) 30 Taxes on products 25 Subsidies on products 5 Net income…

Answer: ((a)) Using the expenditure method, GDPmp = C + I + G + (X-M) = 180+60+50+(40-30) = 300, i.e. $300 billion ((b)) GDP at basic prices = 300 - (25-5) = 280, i.e. $280 billion ((c)) GNI = 300 + 15 = 315, i.e. $315 billion ((d)) NNI = 315 - 45 = 270, i.e. $270 billion. Part (a): GDP at market prices by the expenditure method The expenditure method adds up spending on all the final goods and services produced within Vantoria's borders during the year: GDPmp = C + I + G + (X - M) Substituting the values fr…

AS Level Economics 9708: Calculating GDP, GNI and NNI by the Expenditure Method

Item	$ billion
Consumption (C)	180
Investment (I)	60
Government spending (G)	50
Exports (X)	40
Imports (M)	30
Taxes on products	25
Subsidies on products	5
Net income earned from abroad by Vantorian residents	15
Depreciation (consumption of capital)	45

Item

$ billion

Consumption (C)

180

Investment (I)

Government spending (G)

Exports (X)

Imports (M)

Taxes on products

Subsidies on products

Net income earned from abroad by Vantorian residents

Depreciation (consumption of capital)

Part (a): GDP at market prices by the expenditure method

The expenditure method adds up spending on all the final goods and services produced within Vantoria’s borders during the year:

$GDP_{mp} = C + I + G + (X - M)$

Substituting the values from the table (all in $ billion):

$GDP_{mp} = 180 + 60 + 50 + (40 - 30) = 180 + 60 + 50 + 10 = 300$

So Vantoria’s GDP at market prices is $300 billion.

Part (b): GDP at basic prices

GDP at market prices includes taxes on products (which raise the price a buyer pays but do not become income for the producer) and excludes subsidies on products (which lower the price a buyer pays but are still received by the producer). To move from market prices to basic prices, this net effect of taxes and subsidies on products must be removed:

$GDP_{bp} = GDP_{mp} - (\text{taxes on products} - \text{subsidies on products})$

$GDP_{bp} = 300 - (25 - 5) = 300 - 20 = 280$

So Vantoria’s GDP at basic prices is $280 billion, $20 billion lower than at market prices, reflecting the net taxes included in the prices buyers actually pay.

Part (c): Gross National Income (GNI)

GNI adjusts GDP (at market prices) to include income that Vantorian residents and firms earn from assets held abroad, and to exclude income that foreign residents earn from assets held inside Vantoria. Since Vantorian residents earn $15 billion more from abroad than foreign residents earn inside Vantoria, this net income from abroad is added:

$GNI = GDP_{mp} + \text{net income from abroad} = 300 + 15 = 315$

So Vantoria’s GNI is $315 billion.

Part (d): Net National Income (NNI)

GNI is a gross measure: it makes no allowance for capital equipment wearing out during production. NNI (sometimes just called national income) is the net measure, found by subtracting depreciation (consumption of capital) from GNI:

$NNI = GNI - \text{depreciation} = 315 - 45 = 270$

So Vantoria’s NNI is $270 billion.

Final answers

(a) GDP at market prices $=$ $300 billion
(b) GDP at basic prices $=$ $280 billion
(c) GNI $=$ $315 billion
(d) NNI $=$ $270 billion