SEO Expert for Desklib

Solution 1:
a) GDP using income method = Returns to labor + Firm profits + other factor rentals
= 2651 + 1687 + 482 = 4820
b) GDP using expenditure method at market prices = Consumption + Investment + Government
Expenditure + (Export - Import)
= Household Consumption Expenditure +Government Consumption Expenditure + Consumption
in fixed capital +Gross private fixed capital formation + Government investment expenditure +
(Export of goods and services - Import of goods and services)
= 3115 + 585 + 320 +785 + 210 + (690-565) = 5140
c) Gross National Expenditure (GNE) = GDP - (Export -Import)
= 5140 - ( 690 - 565) = 5140 - 125 = 5015
d) NDP = GDP - Depreciation = GDP - consumption in fixed capital = 5140 - 320 = 4820
e) In NDP the country is able to replace the loss of capital stock through depreciation. Therefore,
NDP is a better measure of economic performance than GDP.
(f) To calcualte GNP : Y = C + I + G + X + Z. where
Y means GNP = Consumption + Investment + Government + X (net exports, or imports minus
exports) + Z (net income earned by domestic residents from overseas investments - net income
earned by foreign residents from domestic investments.)
C = Consumption of fixed capital+ Household consumption expenditure

C = 3435
I = 210
G = 585
X = 125
Z = - 34
GNP = 3435 + 210 + 585 + 125 -34 = 4321
(g) NNP = GNP - Depreciation
here we do not any depreciation given, so NNP is same as GNP.
(h) Current Account Balance = (X-M) + NI + NT
 X means the export of goods and M means the import of goods = 125
 NI means net income = 34
 NT means net current transfers
Current account Balance = 125 + 34 = 159
(i) GNS = Gross national disposable income - final consumption expenditure
National disposable income = National income (4321)+ Net indirect taxes(0) + Net current
transfers from rest of the world(-34)
= 4321 - 34 = 4287
final consumption expenditure = Government consumption expenditure + Household
consumption expenditure

= 3700
GNS = 4287 - 3700 = 587
j) National income or GDP has two sides following the way it is calculated. These are income
method and expenditure method. Income method measures GDP by adding the income heads,
expenditure method calculates GDP by adding the expenditure heads. First we calculate the total
income generated using the income method.
Income = returns to labour + firm profits + other factor rentals = 4820
Next we calculate total expenditure by adding the heads of expenditure. And they are broadly
categorised as
i. Private Consumption expenditure (by the household) = 3115
ii. Private Investment expenditure = gross fixed capital formation = 785
iii. Government expenditure (consumption + investment) = 585 + 210 = 795
iv. Export – imports = 690 – 565 = 125
S = I + (G – T) + (X – M) = 785 + (795 – 17) + 125 = 1688.
Therefore, the value of national savings is $ 1688 billion.
k) I presume that MPCd refers to the domestic marginal propensity to consume. Marginal
propensity to consume measure how much consumption increases if income increase by $1. Here
income increases by $(4873 – 4820) = $53 billion. Hence, given that MPCd is 0.63, the increase
in consumption will be by an amount of 0.63 × $53 = $33.39 billion. The new level of domestic
consumption will be 3115 + 33.39 = $3148.39 billion