Question

You are given the data below for 2008 for the imaginary country of Amagre, whose currency is the G.

• Consumption 350 billion G
• Transfer payments 100 billion G
• Investment 100 billion G
• Government purchases 200 billion G
• Exports 50 billion G
• Imports 150 billion G
• Bond purchases 200 billion G
• Earnings on foreign investments 75 billion G
• Foreign earnings on Amagre investment 25 billion G

1. Compute net foreign investment.
2. Compute net exports.
3. Compute GDP.
4. Compute GNP.

In addition to responding with a quantitative answer, briefly describe how you arrived at your answers.

Answer 1

1. Net foreign investment(NFI)

Net foreign investment is generally the amount foreigners invest in Amagre minus the amount Amagre residents invest in other countries.

Thus,

NFI = Earnings on foreign investments - Foreign earnings on Amagre investments

$NFI = 75 billion G -25billion G$

NFI = 50 billion G

2. Net Exports

The value of net exports is the difference between the value of Amagre's total exports and the value of Amagre's total imports.

Therefore,

Net exports = Exports - imports

Net exports $=50billion G- 150billion G$

Net exports $= -100$ billion G

3. GDP

Amagre's GDP can be calculated by the summation of Consumption(C), Government purchases(G), investment (I) and Net exports (NX)

$GDP=C+I+G+NX$

GDP$=350$ billion G$+100$ billion G$+200$ billion G$+(-)100$ billion G

GDP = 550 billion G

4. GNP

The Gross National Product is given by GDP plus the value of net foreign investment

Thus,

$GNP=(C+I+G+NX) +NFI$

$GNP=550 billion G+50billionG$

GNP = 600 billion G