• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

Sept 2020 - Q24

O

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.
 
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
 
Back
Top