Sept 2020 - Q24

Discussion in 'CB2' started by ominming, Apr 6, 2021.

  1. ominming

    ominming Member

    24 You are given the following data for an economy:
    £ million​
    Consumer expenditure (including indirect taxes) 120
    Investment 60
    Government expenditure (including transfer payments) 70
    Exports 40
    Imports 30
    Net income from abroad 20
    Indirect taxes 10
    Capital depreciation 20
    Transfer payments 10​


    The value of the economy’s Gross National Income at market prices is:​

    A £250 million.
    B £260 million.
    C £270 million.
    D £280 million.​

    The correct answer is C.​

    I understand that GDP = C_d + I + G + (X - M) and GNY = GDP + net income from abroad.
    Since we are not calculating NNY, capital depreciation is ignored.
    May I know specifically what to do with the transfer payments and indirect tax (when it is included in any of the categories and when it is not)? Can anyone show the calculation as well?

    Thank you in advance.
     
    ominming, Apr 6, 2021
    #1
  2. Dave Johnson

    Dave Johnson ActEd Tutor Staff Member

    Using the expenditure method, gross domestic product (GDP) at market prices can be calculated as follows:

    GDP (market prices) = C + I + G + X - M
    = 120 + 60 + (70 - 10) + 40 - 30
    = 250

    Remember that GDP should only include expenditure on goods and services produced, so government expenditure on transfer payments should not be included. Also, if consumer expenditure includes sales taxes, then the figure given is at market prices, ie prices paid in the shops.

    Gross national income (GNY) can then be obtained by adding net income from abroad:
    GNY (market prices) = GDP (market prices) + net income from abroad
    = 250 + 20
    = 270

    Dave
     
    Dave Johnson, Apr 7, 2021
    #2
  3. ominming

    ominming Member

    Thank you very much for the explanation.
     
    ominming, Apr 8, 2021
    #3

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