National Income example

The following data is for a country.

Consumption expenditure 20
Gross investment 15
Government expenditure 10
Indirect taxes 6
Subsidy 4
Export 10
Import 12
Depreciation 2
Net property income from abroad 1
(All above figures in RM million)

(i) Define GNP; GDP

• Gross National Product (GNP) is the aggregate final output of citizens and businesses of
an economy in one year.
• Gross Domestic Product (GDP) is the total value of all final goods and services produced
in an economy in a one-year period.

(ii) Using expenditure method, calculate:

(1) GDP at market price
GDP at market price = C + I + G + (X – M)
= 20+15+10+(10-12) = 43

(2) GNP at factor cost

GNP at factor cost = GDP at market price + Net Property Income from Abroad + Subsidy –
Indirect Tax = 42

(3) NNP (national income) at factor cost

National Income at factor cost = GNP at factor cost – Depreciation = 40

(iii) Differentiate between nominal GDP and real GDP.

Nominal GDP is not adjusted for inflation whereas real GDP is adjusted for inflation.
Formula

(iv) If nominal GDP is RM10 billion and GDP deflator is 125, calculate the real GDP and
explain the meaning.
Real GDP = (Nominal GDP/GDP deflator) x 100 = (10/125) x 100 = RM8 billion