Question

The table below shows the various items produced and their values in a hypothetical economy within a particular year. Use the information to answer the following questions:

ITEM

VALUE (million GHc)

Sugar cane

200

Tie-and-dye

400

Flour

950

Palm Fruit

1000

Furniture

500

Palm Kernel

2500

Wheat

150

“Friday Dress”

700

Bread

2100

Kernel oil

2800

Subsidy

250

Depreciation

300

Taxes

480

Net Factor Income from Abroad (NFIA)

-500

Using the Value Added approach, Compute:

i) Gross Domestic Product (GDP) at factor price. (3marks)       

ii) Gross National Product (GNP) at market price.

iii) Net National Product at factor price.

iv) Why is the Net Factor Income from Abroad (NFIA) negative? Suggest ways to address the occurrence.                

Answer 1

1. GROSS DOMESTIC PRODUCT , GDP =200+400+950+1000+500+2500+150+700+2100+2800 =1130

GDP _fc = GDP mp -NIT

=11300-480= 10820

GDP(Gross domestic product ) it is the money value of all  goods and services produced within the the domestic territory of a country . GDP is th indicator of national growth. An increasing trend in GDP shows the constant development of a country.

2. GROSS NATIONAL PRODUCT , GNP = GDP_fc +NFI

=10820+-500

=10320

GNP (Gross national product ) is the total money value of all final goods and services produced by a country in a year it also includes net factor income from abroad.

3.NET NATIONAL PRODUCT AT FACTOR PRICE = GNP_fc - depreciation

=10820-300

=10520

NNP (Net national product ) 8is the total money value of all final goods anf services produced by a country in a year less dpreciation .

NET FACTOR INCOME FROM ABROAD

Net factor income from abroad (NFIA) is the difference between the income earned by native people of a country working at abroad and the income earned by the foreigners by working in domestic country. this income sometimes becomes negative when the income earned by foreigners from our country is more than the income easrned by people  from abroad.

NFIA=factor income earned from abroad- factor income paid abroad

In an closd economy net factor income from abrtoad will be always zero because they never deals with the rest of the world . In the situation where net factor income from abroad is negative there will the lower economic growth. NFIA is used todiffeentiate between domestic income and national income . If we ad NFIA to domestic income we will get national income . NFIA can be either negative or positive. It will be positive when the income earned by foriegners from our country is less than the income earned by s from abroad. For hi9gher economic growth it is very important to earn more foreingn currencies. Thus we need to improve NFIA for economic development .We can reduce the negative trend of net factor income from abroad by increasing the number of people working in abroad. It is required to aquire the oppurtunities available in foreign countries for changing negative trends to positive. CSO defines it as income attributable to factor services rented by normal residence of the country to rest of the world , less factor services lender to them by rest of the world. As we know the normal residence of a country earn income from abroad as well a sthe home country. It is always seem to be better to keep the number of workers work in domestic country is less than foreign workers. NFIA mainly comprises of both income inflow and outflow. the activities of foreign owned MNC'S in various countries , net factor income has been constanly negative . Theere are mainly three components for NFIA :

1. Net retained earnings

Net retained earnings is the difference between retained earnings of non resident companies located within the domestic territoy of a country and retained earnings of resident companies located abroad. It is the part of profit kept at reserve after paying corperate tax and dividence .

2. Net compensatuon to employees

Net compensation to employees is the differtence between income recieved by a resident worker living abroad for less than a year and payments made to non resident workers staying within the country for less than a year .

3.Net income from property and enterpeneurship

It reffers to the differtence between income from enterpeneurship receved by residents of the country and payment made to non residents.

these are major components that effects NFIA. Even though the positive trend of the indicator is good for a country . because such countries may have more foriegh reservs. if there is a negative trend in NFIA indicator the authorities must take steps to correct it. they need to encourage people to acheive good oppurtunities that came from abroad inorder to make the country better. in the current situation of corona NFIA will shoes a negative or constant state which definitely effects the growth of a country in future.