Explain the following National Income concepts: (a) Gross Domestic Product (GDP; (4 marks) (b) Gross National Product (GNP; (4 marks) (c) Cost of living; (4...

Answer Details

(a) Gross Domestic Product (GDP) is the total money value of all final goods and services produced within a country's geographical boundaries in a given year, whether produced by nationals or foreigners. It measures domestic output only.

(b) Gross National Product (GNP) is the total money value of all final goods and services produced by the nationals of a country in a year, wherever they are located. It equals GDP plus net factor income from abroad:

\[ GNP = GDP + \text{(income earned by nationals abroad} - \text{income earned by foreigners at home)} \]

(c) Cost of living is the amount of money a person or household needs to buy the basic goods and services required to maintain a given standard of living over a period. Changes in it are measured by a price (consumer) index; a rise in the price index means a higher cost of living.

(d) Per capita income is the average income per head of the population. It is found by dividing national income by the total population:

\[ \text{Per capita income} = \frac{\text{National income}}{\text{Total population}} \]

(e) Standard of living is the level of material welfare and quality of life enjoyed by the people of a country, shown by the quantity and quality of goods and services each person consumes on average, together with factors such as health, education and leisure. A higher real per capita income generally indicates a higher standard of living.