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Measuring Economic Activity and Illustrating Its Variations · Paper 2 — Free Economics SL Practice Questions

1MasteryLAQGross Domestic Product (GDP) and other measures of national income12 marksPaper 2~18 min

Data

GNP=GDP+net property income from abroad\text{GNP} = \text{GDP} + \text{net property income from abroad}; NNP=GNP−depreciation\text{NNP} = \text{GNP} - \text{depreciation}
Country X and Country Y are two neighbouring economies. In 2022, Country X reported a GDP of USD 500 billion and a GNP of USD 480 billion. Country Y reported a GDP of USD 300 billion and a GNP of USD 320 billion. Both countries have significant foreign direct investment (FDI) flows and migrant worker remittances. Assume annual depreciation (capital consumption) is USD 30 billion for Country X and USD 15 billion for Country Y.
(a)
Calculate the net property income from abroad for Country X and for Country Y. [2 marks]
(b)
Explain why Country X's GNP is lower than its GDP, while Country Y's GNP is higher than its GDP, referring to FDI flows and remittances in each case. [4 marks]
(c)
Using the data for Countries X and Y, discuss whether Net National Product (NNP) is a more accurate measure of sustainable economic welfare than GDP. [6 marks]
diagram

Solutions

2MasteryLAQGross Domestic Product (GDP) and other measures of national income10 marksPaper 2~15 min

Data

GNP=GDP+net property income from abroad\text{GNP} = \text{GDP} + \text{net property income from abroad}; NNP=GNP−depreciation\text{NNP} = \text{GNP} - \text{depreciation}*
Country X and Country Y are two neighbouring economies. In 2022, Country X reported a Gross Domestic Product (GDP) of USD 500 billion and a Gross National Product (GNP) of USD 480 billion. Country Y reported a GDP of USD 300 billion and a GNP of USD 320 billion. Both countries have significant foreign direct investment (FDI) flows and migrant worker remittances. Depreciation (capital consumption) is estimated at USD 30 billion for Country X and USD 25 billion for Country Y. *
(a)
Calculate the net property income from abroad for both Country X and Country Y. [2 marks]
(b)
Explain, using the context of FDI and migrant worker remittances, why Country X's GNP is lower than its GDP while Country Y's GNP is higher than its GDP. [4 marks]
(c)
Evaluate whether Net National Product (NNP) is a more accurate measure of a country's sustainable economic welfare than GDP. [4 marks]
diagram

Solutions

3ChallengeLAQGross Domestic Product (GDP) and other measures of national income9 marksPaper 2~14 min

Data

In 2023, the economy of Country X recorded the following national income data (in billions of dollars): - Gross Domestic Product (GDP): 50005000 - Net property income from abroad: −200-200 - Depreciation (Capital Consumption): 400400 - Indirect taxes less subsidies: 300300
(a)
(i) Calculate the Gross National Product (GNP) of Country X. [1]
(ii) Calculate the Net National Product (NNP) of Country X. [1 mark]
(b)
Explain why GNP and NNP may be considered more accurate measures of a country's economic welfare than GDP, using the data from Country X to support your explanation. [3 marks]
(c)
Country Y has a GDP of 50005000 billion (identical to Country X) but a net property income from abroad of +400+400 billion and depreciation of 100100 billion. Evaluate which country's residents enjoy a higher level of sustainable economic welfare, and assess whether GDP alone would be a misleading basis for this comparison. [5 marks]
diagram

Solutions

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