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Chapter 7: Q6. (page 152)

Suppose GDP is \(16 trillion, with \)10 trillion coming from consumption, \(2 trillion coming from gross investment, \)3.5 trillion coming from government expenditures, and \(500 billion coming from net exports. Also suppose that across the whole economy, depreciation (consumption of fixed capital) totals \)1 trillion. From these figures, we see that net domestic product equals:

a. \(17.0 trillion

b. \)16.0 trillion

c. $15.5 trillion

d. none of the above

Short Answer

Expert verified

Option (d): None of the above

Step by step solution

01

Meaning of net domestic product 

The Net Domestic Product (NDP) is the total value of goods and services produced within the domestic territory of a nation minus the depreciation (consumption of fixed capital).

NDP = GDP - Depreciation

GDP is the Gross Domestic Product

02

Explanation for choosing the option ‘d’

Given the GDP is $16 trillion, the Net Domestic Product is calculated as shown below:

NDP = (C + Ig + G + Xn) - Depreciation

= GDP - Depreciation

= $16 trillion - $1 trillion

= $15 trillion

NDP is $15 trillion, and since this does not match the first three options (a,b, and c), option ‘d’ is correct.

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Most popular questions from this chapter

Below is a list of domestic output and national income figures for a certain year. All figures are in billions. The questions that follow ask you to determine the major national income measures by both the expenditures and income approaches. The results you obtain with the different methods should be the same.

  1. Using the above data, determine GDP by both the expenditures approach and the income approach. Then determine NDP.

  2. Now determine NI in two ways: first, by making the required additions or subtractions from NDP; and second, by adding up the types of income and taxes that makeup NI.

  3. Adjust NI (from part b) as required to obtain PI.

  4. Adjust PI (from part c) as required to obtain DI.

Define net exports. How are net exports determined? Explain why net exports might be a negative amount.

What is the difference between gross private domestic investment and net private domestic investment? If you were to determine net domestic product (NDP) through the expenditures approach, which of these two measures of investment spending would be appropriate? Explain.

Assume that a grower of flower bulbs sells its annual output of bulbs to an Internet retailer for \(70,000. The retailer, in turn, brings in \)160,000 from selling the bulbs directly to final customers. What amount would these two transactions add to personal consumption expenditures and thus to GDP during the year?

Tina walks into Ted’s sporting goods store and buys a punching bag for \(100. That \)100 payment counts as ______________ for Tina and _____________ for Ted.

a. income; expenditure

b. value added; multiple counting

c. expenditure; income

d. rents; profits
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