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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

Which of the following are included in this year’s GDP? Which are excluded? Explain your answers.

a. Interest received on an AT&T corporate bond.

b. Social Security payments received by a retired factory worker.

c. Unpaid services of a family member who painted the family home.

d. Income of a dentist from the dental services she provided.

e. A monthly allowance that a college student receives from home.

f. Money received by Josh when he resells his nearly brand-new Honda automobile to Kim.

g. The publication and sale of a new college textbook.

h. An increase in leisure resulting from a 2-hour decrease in the length of the workweek, with no reduction in pay.

i. A $2 billion increase in business inventories.

j. The purchase of 100 shares of Alphabet (the parent company of Google) stock.

Suppose that this year’s nominal GDP is \(16 trillion. To account for the effects of inflation, we construct a price-level index in which an index value of 100 represents the price level 5 years ago. Using that index, we find that this year’s real GDP is \)15 trillion. Given those numbers, we can conclude that the current value of the index is:

a. higher than 100.

b. lower than 100.

c. still 100.

Contrast nominal GDP and real GDP. Why is one more reliable than the other for comparing changes in the standard of living over a series of years? What is the GDP price index, and what is its role in differentiating nominal GDP and real GDP?

Using the following national income accounting data, compute (a) GDP, (b) NDP, and (c) NI. All figures are in billions.

Use the concepts of gross investment and net investment to distinguish between an economy that has a rising capital stock and one that has a falling capital stock. Explain: “Though net investment can be positive, negative, or zero, it is impossible for gross investment to be less than zero.”
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