Question

GNP \(5 £ 2000, C 5 £ 1700, G 5 £ 50\) and \(N X 5 £ 40 .\) (a) What is investment \(I ?\) (b) If exports are 350 , what are imports? (c) If depreciation \(5 £ 130\), what is national income? (d) In this example, net exports are positive. Could they be negative?

Short answer

(a) Investment \( I = 210 \). (b) Imports = 310. (c) National income \( NI = 1870 \). (d) Yes, net exports can be negative.

Step-by-step solution

Understand given values and GNP equation

The values provided are: \( GNP = 2000 \), Consumption \( C = 1700 \), Government Spending \( G = 50 \), and Net Exports \( NX = 40 \). The Gross National Product (GNP) equation is defined as \( GNP = C + I + G + NX \). We use this information to determine \( I \), the investment.

Solve for investment (I)

Plug in the known values into the GNP equation to solve for \( I \): \[ 2000 = 1700 + I + 50 + 40 \]. Simplify to find \( I \): \[ 2000 = 1790 + I \], thus \( I = 210 \).

Find imports given exports

Given exports are \( 350 \) and \( NX = Exports - Imports \), we know \( 40 = 350 - Imports \). Therefore, \( Imports = 350 - 40 = 310 \).

Calculate National Income with depreciation

National Income \( NI \) is calculated as \( NI = GNP - Depreciation \). With \( GNP = 2000 \) and Depreciation = \( 130 \), we substitute to find \( NI \): \( NI = 2000 - 130 = 1870 \).

Discuss implications on net exports

Net exports \( (NX) \) can indeed be negative if imports are greater than exports, resulting in \( NX < 0 \). This occurs when the value of imported goods exceeds the value of exported goods.

Key concepts

Investment Calculation

Investment Calculation is a portion of a country's Gross National Product (GNP) that reflects total spending on new capital assets like machinery, equipment, and buildings. It is crucial for understanding economic growth as it indicates how much is being invested in goods that will be used for future production.

The formula to compute investment involves rearranging the GNP equation:

• GNP = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (NX).
• When you have all other components given, solve for I: \[I = GNP - C - G - NX\]

For instance, if the GNP is £2000, with Consumption at £1700, Government Spending £50, and Net Exports £40, we find the Investment by plugging these values into our equation:\[I = 2000 - 1700 - 50 - 40 = 210\]This calculation shows an investment of £210. Understanding this concept helps students see how investments contribute to the overall economy, impacting future production.

Net Exports

Net Exports represent the value of a country’s total exports minus its total imports. It is a vital component of the GNP equation and affects a country’s economic health.

To calculate Net Exports:

• First, understand the formula: \[NX = Exports - Imports\]
• For example, if exports are given as £350 and Net Exports (NX) as £40, solving for imports gives:\[40 = 350 - Imports\]
• Rearrange to find:\[Imports = 350 - 40 = 310\]

Net Exports can be positive, indicating a trade surplus, or negative, reflecting a trade deficit. In our example, a positive NX implies that exports exceed imports. However, if imports exceed exports, NX would be negative, signifying that more goods are being imported than exported, which can impact the economy differently.

National Income

National Income (NI) is the total income earned by a nation's residents, including wages, rent, interest, and profit, but excluding depreciation. It helps measure the economic well-being of a country.

To compute National Income:

• Start by understanding the formula: \[NI = GNP - Depreciation\]
• Depreciation accounts for the wear and tear of capital assets and is subtracted to reflect true income.

In the given example, with a GNP of £2000 and Depreciation of £130, calculate:\[NI = 2000 - 130 = 1870\]This results in a National Income of £1870, indicating the earnings of residents after accounting for asset depreciation. Understanding NI helps evaluate the economic strength and establishes how much income is available for savings and consumption.