The following data relate to a closed economy of a country where all production takes place in two firms. Use the information in the table to answer the questions that follow:
(ii) What happens to intermediate inputs in the calculation of the national income?
(iii) Calculate the Gross Domestic Product (GDP) of the country.
(ii) Calculate the Net Domestic Product of the country.
Explanation
(a)(i) The intermediate input is the raw materials.
(ii) In the calculation of the national income, the value of intermediate input is deducted from the value of sales in order to avoid double counting or the value of intermediate input is not added using the value added approach.
(iii) The Gross Domestic Product (GDP) of the country is calculated as the Value of Sales - Intermediate Input,
i.e $(200,000 + 400,000) - $(100,000 + 60, 000) = GDP $600,000 - $160,000 = $440,000)
or
Firm A: $80,000 + $16,000 + $4,000 = $100,000.
Firm B: $160,000 + $40,000 + $140,000 = $340,000
GDP = $100,000 + $340,000 = $440,000
(b)(i)The total amount of depreciation of the country can be calculated as Firm A's Depreciation + Firm B's Depreciation
$16,000 + $40,000 = $56,000.
Total Depreciation = $56,000
(ii) The net domestic product (NDP) is calculated as GDP - Depreciation i.e.,
$440,000 - $56,000 = $384,000, NDP = $384,000.
