Theory question 112
National IncomeSection B (answer four questions only from this section)
(a) Define Gross National Product (GNP).
(b) Describe the three methods of measuring national income.
Show the model answer
(a) GNP is the total money value of all final goods and services produced by a country's residents in a year, i.e. GDP plus net factor income from abroad.
(b) Output (product) method: add the value added (or value of final goods and services) by all sectors of the economy, avoiding double counting.
Income method: add all incomes earned by factors of production in producing the output – wages, rent, interest and profits – leaving out transfer payments.
Expenditure method: add all spending on final goods and services – consumption (C), investment (I), government spending (G) and net exports (X − M).
All three should give the same total.
Mention how double counting is avoided in each method.